The March 12 Couch Potato Summary mentioned "...Stocks are advancing on lower than normal volume- very soon we should find out if prices are at a resistance level, with a double-top and pullback. Obviously, the ideal scenario for our iron condors is a minor correction to relieve the pressure on the short calls..."
We did not get our "ideal scenario" and therefore the next move is to limit further losses.
MDY Position Update
Listed below is the status of our MDY Iron Condor trade as of Wednesday afternoon on March 17th. This position has been open for 25 days:
The entire position is approx $4,900 in the red
MDY is at approx. $144.78
30-day historical volatility and implied volatility are extremely low - which is considered bullish
MDY is priced ABOVE its' current 14-day EMA (see MDY chart down below)
MDY is trading ABOVE its' 20-day Bollinger Band SMA, and 50-day simple moving average (see MDY chart)
MDY is still well ABOVE its 200-day simple moving average (see MDY chart)
Relative Strength Indicator (RSI) is EXTREMELY bullish (See MDY chart)
Moving Average Convergence/Divergence (MACD) is EXTREMELY bullish (See MDY chart)
MDY Bear Call Spread
The March 11th Couch Potato recommended closing out the initial call spread for an approx. $4,750 loss and following up with a TRADE ADJUSTMENT to roll up to a higher strike price call spread. We are immediately rolling up the adjusted call spread for a $1,790 loss. (see tables below)
MDY Bull Put Spread
The March 8th Couch Potato recommended closing out the initial put spread for an approx. $990 gain. The March 11th Couch Potato followed up with a TRADE ADJUSTMENT to roll up to a higher strike price put spread. We are immediately closing out the adjusted put spread for an approx. $650 gain. (see tables below)
MDY Risk Analysis
We are rolling the adjusted call spread to a higher strike price. The choices are closing out call spread or doing another adjustment to offset the loss (getting out of the current short call will avoid assignment). The higher strike call will have a favorable risk profile; small stocks have been on a historic run the past few weeks and there is the risk of another up-gap threatening the revised short strike.
The rules for exiting the MDY call credit spread are:
After market close, if the delta associated with one of the short strike rises to .50 we will look to close out this spread (buy the short contracts, sell the long) â€“ otherwise we can let the contracts expire on Friday.
The S&P500 futures have finished higher 12 out the last 13 days â€“ we haven't experienced this many consecutive up since 1987. Most of the major indexes have broken out to new 52-week highs. Obviously, this is not the ideal scenario for market neutral trading strategies similar to the iron condor. A few months ago stocks prices were tepid and trading iron condors was easier. The market has suddenly heated up on us; we will take our lumps this month and make the necessary adjustments to get back on track â€“ this scenario is typical when trading iron condors.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.