The July 3rd Couch Potato mentioned Quarterly earning announcements start in a few weeks and the most recent history has been that stock prices held up well as investors viewed the results positively... If there is follow through on this week's price action then we can expect to have a chance to do both call spread and put spreads. Ideally, next week prices will stabilize at around the current level and we should have the opportunity to do our next trades.
The market cooperated and as indicated below we were able initiate call and put spreads that fit our ordering rules.
SPY Position Update
SPY closed $134.40 on Friday
SPY is priced ABOVE its current 14-day EMA (see SPY chart down below)
SPY is trading ABOVE its 20-day Bollinger Band SMA (see SPY chart)
SPY is ABOVE its 50-day simple moving average (see SPY chart)
SPY is also ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is bullish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is bullish (See SPY chart)
The July 5th Couch Potato published an August expiration month iron condor that was executed the next day
SPY Risk Analysis
The near term trend is up and unless resistance levels hold the most probable risk is that the current trend continues and threatens our $138 short call.
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 may be able to 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 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 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 did separate orders for the call and put spreads to make sure that we generated an acceptable premium on both sides of the iron condor. One could have done one order for all four legs and saved a little bit on commissions and fees but you probably would have sacrificed some of the premium on one of the spreads.
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.