The wait is almost over; the Fed's decision on pending rate hike is next week.
The broad market ended the holiday-shortened week on a high note, with the main indexes advancing and posting solid weekly gains as investors looked ahead to a crucial meeting of Federal Reserve policy makers. The benchmark index SPX closed up 8.72 points Friday or .5%, posting a weekly gain of 2.1%.
I felt it was too volatile to enter the weekly SPX Iron Condor Friday. The combination of China's Industrial Production report coming out this weekend, and the continued uncertainty over "rate hike, no rate hike" has us sitting on the sidelines until after FOMC makes their announcement.
Weekend risk is inherent to trading in general, and it is magnified greatly for shorter term trades. I received an email from one of our readers as to whether a Monday entry may be viable for the weekly Iron Condor. I do think it may be feasible, especially with the VIX still above 20. The problem I see, however, with an entry next Monday is the looming FOMC meeting and announcement. Typically there is very little, if any, decay in the days leading up to the announcement. In addition, we often see the VIX creep up as time draws close to the news release.
If the market is too volatile to enter a weekly next Friday (day following FOMC), we will look at entry the following Monday for the September 4 weekly cycle.
Below is the current open position status:
SPY October Iron Condor
This monthly position was opened on Wednesday, September 9. Trade details are below:
- SOLD SPY October 209 Call, $.50.
- BOUGHT SPY October 214 Call, $.10.
- SOLD SPY October 180 Put, $1.32.
- BOUGHT SPY October 175 Put, $.91
Order was filled as an "Iron Condor" for $.81 net credit (all four legs) .
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this trade: $419.
Target Gain: 10% of margin/risk.
Max loss: 15% of margin/risk.
Below is the risk graph of this monthly position as shown on my broker's platform:
SPY October Iron Condor:
SPY closed Friday at 197.17, +.22%. The position is currently +$15 and fairly well centered going into next week so we will continue to let theta collect as long as the trade remains within the guidelines.
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. It is recommended to have a "good to cancel" conditional order in to exit the position for target gain or max loss. Please follow your broker's specific guidelines on the setup of conditional orders as they can vary by broker.
Next week's economic news is highlighted by the FOMC meeting and press conference on Thursday. A summary is below:
China reports Industrial Production
8:30 am Retail Sales
8:30 am Empire State Manufacturing Index
9:15 am Industrial Production
10:00 am Business Inventories
FOMC Meeting Begins
8:30 am Consumer Price Index
10:00 am Housing Market Index
10:30 am EIA Petroleum Status Report
8:30 am Housing Starts
8:30 am Jobless Claims
10:00 am Philadelphia Fed Business Outlook
2:00 pm FOMC Meeting Announcement
2:30 pm Fed Chair Yellen Press Conference
Next week is the planned entry for the RUT Iron Butterfly for the October monthly cycle. However, with the looming FOMC I am not recommending entry prior to the meeting announcement. We will look at a possible entry late in the week, depending on market conditions and available credit. If the market is too volatile on Friday (the day after the announcement), we may have to skip October for the RUT Iron Butterfly.
For those unfamiliar with the strategy, the trade management guidelines for all the Couch Potato Trader plays were most recently published on August 20, 2015, and can be found here:
Link to Articles
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,