Market Summary
The March 26th Couch Potato Summary mentioned "...Well, stocks may be running out of steam...The short-term trend is still up, but stocks needed a breather after an unimpeded ascent off February lows. The best case scenario for our iron condors is for the bears to get their way – this will relieve the pressure on the call spreads and get us back on the profitability path..." This analysis is still valid as stocks basically traded flat this past week. More people are suggesting stock prices are due for correction, and eventually, this prediction will come true; but this does not rule out near-term advances. The best-case scenario for us is that the signals hinting at a possible pullback (overbought stock chart indicators and oscillators, overly bullish sentiment indicators, prices near resistance levels, etc.) come to fruition forcing, prices to retrench a bit.

SPY Position Update
On April 1st we opened a May expiration month SPY Iron Condor.
SPY closed at $117.80 on Thursday (50 days to May expiration)
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 neutral (See SPY chart)

In the tables below is the April 1st SPY iron condor trade (as posted in the March 31st Couch Potato)

SPY Risk Analysis
S&P weekly gains have been relatively modest the past few weeks with higher volume on down days – but the index still rose for the fifth consecutive week. The bulls versus bears battle continues as the SPY is bumping up against $118 resistance and threatening to break through. Until the bears can muster up enough steam to force the SPY price down to around the $115 level it might be risky to bet that a short-term top is in place. Until we get confirmation of short-term top, the most probable risk to our SPY iron condor is a threat to the $121 short call.

SPY Exit Plan
As with initiating the trade, the decision process for exiting our SPY Iron Condor position will be simple:

Anytime the market maker is willing to accept a limit price of less than .11 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread.

If one of our short strikes is penetrated (closing price above our short call or below the short put) AND after market close, if the delta associated with one of the short strikes is .65 or higher, we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.

We opened the SPY Iron Condor as a separate order with four legs each. Exiting this position prior to expiration we will probably “leg out” of the trade by first unwinding either the bear call spread or the bull put spread; and close out the other side of the spread as a separate order. The timing of closing out each side of the SPY Iron Condor is dependent on following our SPY Exit Rules described above.

DIA Position Update
Listed below is the status of our DIA Iron Condor trade as of Friday April 2nd. This position has been open for 11 days:
The entire position is approx. at break-even
DIA closed at $109.28
30-day historical volatility and implied volatility are extremely low - both volatility numbers are near 52 week lows, which is considered bullish
DIA is priced ABOVE its' current 14-day EMA (see DIA chart down below)
DIA is trading ABOVE its' 20-day Bollinger Band SMA, and 50-day simple moving average (see DIA chart)
DIA is still well ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is EXTREMELY bullish (See DIA chart)
Moving Average Convergence/Divergence (MACD) has turned neutral (See DIA chart)

DIA Bear Call Spread
This spread is approx. $340 in the red (see tables below)
$110 strike price short call delta is .3014 (70% probability this position will be profitable)

DIA Bull Put Spread
This spread is approx. $620 in the black (see tables below)
$105 strike price short call delta is .1164 (89% probability this position will be profitable)

DIA Risk Analysis
Similar to the SPY Risk Analysis above, the DIA has ended up five consecutive weeks on lower volume. DIA is trying to make a convincing break through the $109 resistance level. We have two weeks until option expiration and if stocks do not pull back our $110 short call will be at risk.

DIA Exit Plan
As with initiating the trade, the decision process for exiting our DIA Iron Condor position will be simple:

Anytime the market maker is willing to accept a limit price of less than .06 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread.

If one of our short strikes is penetrated (closing price above our short call or below the short put) AND after market close, if the delta associated with one of the short strikes is .65 or higher, we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.

We opened the DIA Iron Condor as a separate order with four legs each. Exiting this position prior to expiration we will probably “leg out” of the trade by first unwinding either the bear call spread or the bull put spread; and close out the other side of the spread as a separate order. The timing of closing out each side of the DIA Iron Condor is dependent on following our DIA Exit Rules described above.

Final comment
If you take a gander at the main index stock charts you will notice how prices dropped straight down during the January to mid-February correction. After the plunge, prices shot straight up virtually unimpeded. This scenario differs from the end of last year when stocks basically traded range-bound, which is the opportune environment for market neutral strategies similar to the iron condor. Short sellers had their party at the beginning of this year, and then the long players took over and began a non-stop celebration. The past few weeks the bulls and bears have been skirmishing over who is going to take over the ballroom. At this point they both seem a little fatigued and if the market continues trading range-bound maybe it will be time for the butterflies, condors' etc. to take a turn on the dance floor!

Gregory Clay

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.