Market Summary
Some people are crediting the market upturn last week in part to comments by prominent NYU professor Nouriel Roubini. Mr. Roubini who has been credited with predicting parts of the financial crisis, said the economy would emerge from the recession toward the end of 2009. Immediately after Roubini's comments, industrial and materials stocks rallied broadly. Nouriel Roubini is also known as Dr. Doom for predicting the 2006 global economic crisis, and earlier this year had suggested the recovery would have to wait until 2010.

Position Update
SPY closed at $94.13 up 7% for the week
Put/Call ratio is 1.59 (considered extremely bullish)
30-day historical volatility is 21.30%; implied volatility is 22.73%
SPY is priced ABOVE its 200-day simple moving average
SPY is trading ABOVE its 50-day simple moving average, 20-day EMA and 20-day Bollinger Band SMA(see SPY chart down below)
Relative Strength Indicator (RSI) is turning bullish See Spy chart below
Moving Average Convergence/Divergence (MACD) indicator is bullish See Spy chart

July SPY Iron Condor
We initiated the July SPY Iron Condor trade on June 15th and these options expired this past Friday. This position was in play for 27 days and we closed it out with a $2,088 total profit – see tables below

The Bear Call spread part of the Iron Condor was closed at $1,140 profit on June 22nd (see table below)

We exited the Bull Put spread with a $948 profit on July 15th (see table below)

August SPY Iron Condor
We initiated the August SPY Iron Condor trade on July 15th. The overall position is $880 in the red (see tables below)

Risk Analysis
When we initiated the August Iron Condor there was confirmed short-to-medium term downtrend. Immediately after the trade the situation abruptly changed as the market gapped up and began a short-term uptrend. At this point the most probable risk is the $96 strike price on our sold call is penetrated and we would need to decide whether to maintain our position or execute a trade adjustment. However, the SPY has been range bound for several months closing between $88 and $95 after failing previous attempts to sustain a breakout above $95.

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

If one of our short strikes is penetrated (closing price above our short call or 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 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 initiated the SPY Condor as one order with four legs. 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 Iron Condor is dependent on following our Exit Rules described above.

Final comment
We still have 34 days until the August option expiration date and the focus is to monitor the risk to our short strikes, analyze what the market is telling us, and be prepared to react accordingly.

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.