Market Summary
An interesting tidbit gleaned from the unemployment data that was reported several weeks ago was the fact that the 55 and older age group was the only segment of the population with positive net job growth. The rest of the population had a net job loss of 661,000, but the middle-age group gained almost a quarter million jobs. Over the past year, the other age brackets lost six million jobs but the older age group added 630,000 new positions. Even more remarkable is there was a 1.1% increase in the number of older Americans who worked multiple jobs, the only age group to have gained multiple jobs.

Several analysts have concluded the reason for the relatively aggressive job hunting among the 55 and over group is that this age group was financially decimated by both the 2001 tech stock bubble burst AND the real estate meltdown seven years later! It should be very interesting to see what the outcome will be politically, and to the financial system if we have another jobless economic recovery?

Position Update
Listed below is the status of our SPY Iron Condor trade as of Friday June 26th. This position has been open for 11 days:

The entire position is $1,548 in the black
SPY closed at $91.84 down .3 for the week
30 historical volatility is 22.35%, implied volatility is 23.93%
SPY is treading above its 200-day and 50-day simple moving averages. SPY is trading right at the level of the 20-day EMA and 20-day Bollinger Band SMA(see SPY chart down below)

Bear Call Spread
Closed out all this entire position at $1,140 profit on June 22nd (see tables below)

With three weeks until the July option expiration date we will consider opening another SPY Bear Call spread IF we can satisfy our original trade criterion - generate a minimum .55 net credit on the spread between the short and long strikes AND the short strike should fit our statistical probability profile (80% chance all the options will expire worthless)! Also, we need the short strike to exceed the redefined resistance levels:

$95 calculated based on previous closing highs and technical resistance levels
$96 is the upper price level of our 80% statistical probability range
$96.15 is the upper level of the Bollinger Band Solid purple line in the SPY chart above
Relative Strength Indicator (RSI) is neutral See Spy chart above
Moving Average Convergence/Divergence (MACD) indicator is bearish See Spy chart above

Bull Put Spread
This spread is $408 in the black (see tables below)
$86 strike price short put delta is -.1589 (84% probability this trade will be profitable)

Risk Analysis
When we initiated the Iron Condor trade there was a short-to-intermediate term up trending market environment, but the situation rapidly changed and now we are in the initial stages of a short-term downtrend. A comment from the June 14th Couch Potato commentary stated "The SPY has been trading in a relatively tight range the past few weeks. Typically, the price breakout from a tight trading range (whether to the upside or downside) is very aggressive." There is clearly bearish bias from both a technical and fundamental perspective and bear market proponents have awakened from recent hibernation and are trumpeting a move to the downside. The bulls camp has become relatively muted though you can hear occasional murmurs suggesting there is still near term upside potential.

The reality is that the market still has not played its hand and no one can say conclusively whether the next high volatility medium-term move will be North or South. Market response after the two-day Federal Reserve Board meeting was uneventful and we are entering the summer months which normally have relatively light volatility compared to other times of the year. Most investors would probably bet the next big market move is to the downside, but we really don't know (and most investors are usually wrong anyway)! For us the benefit of the current indecisiveness is the premium is eroding from our sold options (money we hope to be able to keep).

Since we closed out our short $100 strike call, the only risk we have to manage is the $86 strike price sold put. The risk associated with the sold put will be evaluated and resolved based on the Exit Plan below

Exit Plan
The rules for exiting the Bull Put spread are:

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. However, if it is a few days prior to the expiration date, we can hold out for a .05 bid.

If the short put strike price is penetrated (closing price below the short put) AND the delta rises to .65 we will look to close out this spread (buy the short contracts, sell the long) and roll it out to the next month. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If the short strike has been violated and there is no price reversal, we cut our losses and live to fight another day.

On option expiration day, if rules 1 and 2 above have not been activated, let the Bull Put spread expire worthless and we keep the entire sold premium for any open contracts where the short strikes are not threatened.

We initiated the SPY Iron Condor as one order with four legs. The Bear Call spread has already been closed. The Bull Put spread will be closed out as a separate order following the Exit Rules described above.

Final comment

We still have 21days until the July option expiration date and the situation can change in a hurry. We will continue to listen to and understand what the market is telling us and manage our risk accordingly. Whichever direction the market goes we have a ready exit and are planning our next move!

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.