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.
SPY Position Update
Listed below is the status of our SPY Iron Condor trade as of Wednesday March 17th. This position has been open for 16 days:
The entire position will be approx. break-even after trade adjustments
SPY closed at $117.10
30-day historical volatility and implied volatility are extremely low - which is considered bullish
SPY is priced ABOVE its' current 14-day EMA (see SPY chart down below)
SPY is trading ABOVE its' 20-day Bollinger Band SMA, and 50-day simple moving average (see SPY chart)
SPY is still well ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is EXTREMELY bullish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is EXTREMELY bullish (See SPY chart)
SPY Bear Call Spread
We are immediately closing out the initial call spread for an approx. $3,070 loss and following up with a TRADE ADJUSTMENT to roll up to an end-of-month March Quarterly higher strike price call spread (see tables below) - After the trade adjustment the call spread(s) should be approx. $1,830 in the red.
SPY Bull Put Spread
We are immediately closing out the initial put spread for an approx. $980 gain and following up with a TRADE ADJUSTMENT to roll up to an end-of-month March Quarterly higher strike price put spread (see tables below) - After the trade adjustment the put spread(s) should be approx. $1,800 in the black.
SPY Risk Analysis
The indicators suggest $117 should be short-term resistance, however until the market proves otherwise we must assume the current uptrend will continue and the $118 strike short call will be at risk
The rules for exiting the SPY credit spreads are:
Anytime the market maker is willing to accept a limit price of less than .05 on one of the short strikes, buy back all the short contracts and sell the long positions on the same spread.
After market close, if the delta associated with one of the short strikes rises to .55 we will look to close out this spread (buy the short contracts, sell the long).
March 31st is expiration day for the SPY options, and if rules 1 and 2 above have not been activated, let the option contracts expire worthless and we keep the entire sold premium for any open contracts where the short strikes are not threatened.
The S&P500 futures have finished higher 13 out the last 14 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.