Investors struggled with mixed economic reports throughout the week; major indices ended with a third weekly loss.
Friday's market action produced another round of selling; ending a turbulent trading week. Friday's economic reports indicated that the Producer Price Index showed a surprise drop, and Consumer Sentiment fell in March. Those less-than-stellar reports just added to the mixed news releases during the week; bringing more confusion to investors struggling for direction.
Below is the current open position status:
SPX Weekly Iron Condor
This March weekly position was opened Friday; trade details are:
- SOLD SPX March 2110 Calls, currently $.70. Delta of short call: .07.
- BOUGHT SPX March 2120 Calls, currently $.35.
- SOLD SPX March 2000 Puts, currently $3.40. Delta of short put: -.13.
- BOUGHT SPX March 1990 Puts, currently $2.20.
Order was filled as an "Iron Condor" for $1.55 net credit (all four legs).
One of our subscribers emailed me last evening wondering why the short call of 2110 was sold when it only had a delta of .07. While the guidelines call for the delta to be in the .10 - .14 range for the short strike, I felt it was wise to be a bit more conservative in the event of a sharp rally over the weekend after yesterday's drop. The credit received of $1.55 was much more than the minimum recommended for the trade entry ($1.25), and I wanted to give a bit more room for this week's trade.
Margin/Risk is calculated by the width of the wings ($1,000), less credit received.
Margin/Risk for this week's trade: $845.
Target Gain: 7% of margin/risk or $60.
Max loss: 10% of margin/risk or $85.
The FOMC meeting is next week, with the announcement and subsequent press conference on Wednesday afternoon. It is recommended to exit the weekly position prior to the announcement, as any surprises could bring some market movement against the position with only one trading day to recover.
The risk graph showing the position as of the close is below:
SPX March Weekly Iron Condor
SPX closed yesterday at 2053, down 12.5 points or .06%. SPX had dipped to the low of the day of 2041 shortly after the trade entered; but the close ended up only 1 point below the price of SPX when the order was filled. The open position is currently +$15, the debit to exit as of the close is $1.40. My exit order is in place to close the trade for target gain ($.95 debit), or if the debit reaches $2.35 which would be max loss.
The SPX chart is below showing the short strikes:
SPX 6 month chart
SPY April Iron Condor
This monthly position was opened Monday, March 9; details as follows:
- SOLD SPY April 215 Calls, currently $.48. Delta of short call: .14.
- BOUGHT SPY April 220 Calls, currently $.08.
- SOLD SPY April 197 Puts, currently $1.24. Delta of short put: - .17
- BOUGHT SPY April 192 Puts, currently $.74
Order was filled as an "Iron Condor" for $.90 net credit (all four legs). SPY was trading at 208.18 when the order filled.
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this trade: $410.
Target Gain: 10% of margin/risk.
Max loss: 15% of margin/risk.
Below is the risk graph of this new position as of the close Friday:
SPY April Iron Condor:
The position is currently just above breakeven, and fairly well centered between the short strikes.
Below is the SPY chart showing the short strikes:
SPY 6 month chart
The guidelines call for the position to remain open until target gain is reached, as long as SPY stays between the short strikes. They also call for exiting at the pre-set max loss, or if SPY reaches either short strike.
Next week brings quite a bit of economic news including the FOMC meeting; a recap is below:
9:15 am Industrial Production
10:00 am Housing Market Index
FOMC Meeting Begins
8:30 am Housing Starts
10:30 am EIA Petroleum Status Report
2:00 pm FOMC Meeting Announcement
2:30 pm Fed Chair Yellen Press Conference
8:30 am Jobless Claims
10:00 am Philadelphia Fed Survey
Next week is the planned entry schedule for the April RUT Iron Butterfly. Monday is 32 days prior to expiration; depending on market conditions, we will enter this position sometime next week. I will likely wait until after the FOMC meeting announcement on Wednesday to open this new position.
For those of you who may not be familiar with this monthly strategy, the guidelines were most recently published on October 22, 2014, and can be found here: Link to Articles
Position updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,