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Sunday, April 22, 2007

Catching Up With The Market and Our Trading Results

It's been a little while since I've been able to post. With school out for Spring Break it was time to get away with the family. Upon our return, it was time to catch up with all of the work that accumulated while we were off having fun.

The April spreads were closed. With the market rallying hard heading into expiration, we were forced to close our trade for a loss. Let's tally up the damage.

As of February's expiration, we had managed to rack up an 11.75% return, or a total combined credit of $1.10. These profits were generated from those trades expiring in January and February, and are documented on this blog.

We sat March out. No trades were opened because I could not find a spread that provided sufficient return to justify the risk of opening it. That worked out well because the market sold off hard on February 27th.

For April, a $1.20 credit was generated from the sale of a 1,460 - 1,470 bear call spread. At that time, the outlook for the index was bearish. The bulls returned early, however. A bull put spread was opened at 1,355 - 1,365 for a .60 credit. The total credit for the trade was now $1.80.

The suspense grew slowly for the remainder of the month. The market did not trigger an adjustment of our position until Friday, April 13, 2007. Prior to that date, I had become concerned and decided to tighten up the spread. The put spread was closed for a .10 debit. The long 1,470 call was sold and rolled down to $1,465, for a net debit of .60. The net credit on the trade was now $1.10.

When the trigger was reached, we were left with the weekend to evaluate potential adjustment. With less than one week until expiration all we could do was close the trade. Resistance was expected at 1,460, and it appeared that we might be able to close the trade for a modest debit. It just was not meant to be. The bulls smashed resistance at 1,460 early on Monday morning and kept on running.

The put spread was closed for a nominal sum, but the call spread cost us a pricey $3.40.

That left me with a net loss for the month equal to $3.40 - $1.10 = $2.30.

The year-to-date return is a loss of $1.20 or -12%.

From here, we shake off our disappointment and move onto the next month.

Christopher Smith
TheOptionClub.com

Friday, April 13, 2007

Adjusting An Iron Condor Near Expiration

The market took back all of the ground it gave up on Wednesday, and now is hovering within 2 points of my adjustment trigger. A comment was posted to my last post questioning when I will close the spread and the short answer is when I can take my profit or am otherwise forced to do so by the market.

The put spread is ready to close. It is a 10 points spread and I have placed a limit order to close it for a .10 debit. That allows me to keep .50 of the original .60 points I opened it for. If filled, I am left with a bear call spread.

Being this close to to expiration with only 12 points of room between the short strike and the market is a worrisome place to be. The reason it is concerning is because the market, as it has shown us recently, is capable of making a 10 point or better move. A big upside move could really hurt a 10 points spread.

I am taking some of the potential sting out such an event by rolling the long 1,470 call down to 1,465. This will leave me with a 5 point spread, cutting my risk in half. It will cost me some of my credit, but at this point protecting against catastrophe is more important than maximizing profit potential on a credit spread.

Mind your risk, too!

Christopher Smith
TheOptionClub.com

Wednesday, April 11, 2007

Making Money When The Market Is Down!

Wahoo! A little selling on the S&P 500 is just what we needed!

With earnings season here, the expectation is for slower economic growth. Slower growth, plus there was a bigger than expected draw down in gasoline reserves and a smaller than expected build up in oil. There's talk of $4.00 per gallon gas at the pumps.

This was enough for stocks to start lower at the clang of the opening bell, pulling back after their recent gains. By 10:50 a.m. ET, the Nasdaq had fallen 0.7% and the S&P 500 had slipped 0.5%. NYSE volume was tracking about 3% higher and Nasdaq volume was tracking 2% higher.

The minutes from the March Federal Reserve meeting will be released at 2:00 p.m. ET. We'll see what, if any, difference that makes.

The iron condor position is unchanged. We have a bit more breathing room, but we're not yet out of the woods on this trade!


Christopher Smith
TheOptionClub.com

Tuesday, April 10, 2007

Earnings Season and an Iron Condor

Earnings season is here. Our iron condor is still open.

Theta is really biting into the spread, as there are only 9 days left until expiration. But, just a little more upside and I'll be forced to close the call side for a loss.

It's all a very interesting waiting game!

Obviously, I'd like to see the market soften up and trade lower. It's been meandering, which is fine but some selling would certainly be a welcome relief for our iron condor spread.

Win or lose, once it is closed, it will be time to tally the score card and look for the next one.

Christopher Smith
TheOptionClub.com

Thursday, April 5, 2007

NASDAQ Video Update

The waiting game continues with the market. This week has seen a tight consolidation and with a little luck we will finish out today quietly. The markets are closed tomorrow in observance of Good Friday.

I want to share a video with you. This is a recent video providing some analysis of the NASDAQ and you can apply the same analyis to any of the major indexes.


Enjoy the long holiday weekend.

Christopher Smith
TheOptionClub.com

Sunday, April 1, 2007

SPX Iron Condor Trading Update

Sunday is the time to review the prior week's market activity and re-assess our current SPX iron condor position. Friday was a wild wide for the major indexes, but they closed nearly unchanged.


Stocks gapped up at the open on strong readings for personal income and spending, manufacturing and construction also helped the early advance. China was then forced back into the picture, with the Commerce Department saying it would start imposing tariffs on some goods. This stirred trade concerns and the equity market dropped as much as 1% intra-day. Late in the day, for the second-straight session, the broad indexes found a second wind and recovered their lost ground. The S&P 500 pared its loss to 0.1%. The Nasdaq closed up 0.2% and the DJIA rose less than 0.1%. For the week, the Nasdaq and S&P 500 both shed 1.1%. The Dow and S&P 600 fell 1% each. The NYSE composite gave back 0.8%.

You will note that MarketClub has generated a sell signal for the SPX, which I saw tick in live that day. Since I am already in an iron condor, I did not open any new stock options position as a result. The erratic action makes for a difficult trading environment, and combined with higher volume across the board it is not a good sign for an early rally following the February 27th sell-off. The market rally has shown signs of weakness in the past few days.

My iron condor is still there and with continued sideways action it could turn out to be a good month. The bear call spread remains my primary concern. The delta of the iron condor position remains negative, so some further downside would be beneficial and would provide some additional cushion between the index and the short call of my bear call spread.

Christopher Smith
TheOptionClub.com