1 May 2007

Close trade recommendation for SPY (Standard & Poors Dep Rec) Iron Condor initiated on 22 Mar 07

Trade Summary

SPY at 148.18
16 days to May expiration.

Buy SPY May 145 Call
Sell SPY May 147 Call

Let all the puts expire worthless.

For a net price of $1.60 Debit or better.
Profit or loss: -$110 per trade.

Trade Analysis

Alright time's up. We decided to cut our loss now because we believe that we could lose more if we hold on to this ailing position. When we rolled the call spread to buy time on 20 Apr for $0.40 debit, we were hoping that the bulls may run tired soon and we may have a chance to avoid the maximum loss. However, SPY went on to 149.65 on 26 Apr. Although SPY went down yesterday, we just don't see how it can move down to 145.5 to allow us to breakeven for this trade. In fact, looking at the intra-day price-action of SPY, there is no clear indication of whether today will be a down or up day. Most probably SPY will see a very small gain or loss for today. This is consolidation. It seems like the SPY is correcting by time and less by price. As such, the bulls may be able to drive the market higher after a short break. And if we were to hold on to this trade until then, we will most probably suffer greater loss. So we believe that to close this trade now and take our losses would be a wise move.

We took a bet by buying more time to see if we can lower our loss. Until now, there has been no clear sign of the bulls slowing down. This trade will be our first loser since Dec 2006.

Good trading,

Gary

**********Trade History***********

20 Apr 2007

Trade Summary

SPY at 148.07
0 days to Apr expiration, 28 days to May expiration.

Buy SPY Apr 145 Call
Sell SPY Apr 147 Call
Sell SPY May 145 Call
Buy SPY May 147 Call

Let all the puts expire worthless.

For a net price of $0.40 Debit or better.
Total margin required: $160 per trade.

Trade Analysis

When we initiated this condor, who would have believed that the SPX will not only recover from the 28 Feb crash but will also reach a new multi-year high and testing its all-time high in just 29 days. This raging bull caught us off-guard. We saw the bull coming but we underestimated its strength. Volume was low on its way up-an indication of the lack of institution participation. Obviously that didn't matter.

We have two options for us right now: one is to close up this trade and suffer the maximum loss of $110 per trade.; the other is to do this vertical roll. Doing this vertical roll will inevitably expose us to more risk (read we can lose more). Essentially we are paying $0.40 per trade to buy time. We are buying another 28 days of time. Looking back at the past 28 days, nobody can really guess what will happen in the next 28 days.

After this roll, we will be short May 145 call and long May 147 call for a net $0.50 credit. Our total risk is $150 per trade and our breakeven is 145.5. We can reduce this risk by selling a put spread so as to complete an iron condor for May. We may or may not do that depends on market conditions. We will close up this trade as soon as we can get out breakeven or with minimal loss. The market is due for a correction soon. This sudden bullishness caught many by surprise. What is perhaps more surprising is how the market totally forgot about the panic selling that took place just barely a month ago despite the lack of any extreme good news stimulus.

We will continue to monitor this position as well as the others and advise you accordingly. We are currently queuing for another vertical roll of our IWM IC initiated on 15 Mar.

Gary

**********Trade History**********

22 Mar 2007

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 22 Mar 07

Trade Summary

SPY at 143.33
29 days to Apr expiration.

Sell SPY Apr 145 Call
Buy SPY Apr 147 Call
Sell SPY Apr 139 Put
Buy SPY Apr 137 Put

For a net price of $0.90 Credit or better.
Total margin required: $105 per trade.

Trade Analysis

This condor is going to be a very short-live one. Just a few hours ago it was trading at $0.95, it is now at $0.90. This is a 1:1 risk/reward condor. Meaning we are risking almost a dollar for a dollar. Specifically, we are risking $110 to make $90 with a probability of 55.74%. The expected value of this trade is positive [0.5574X$0.90 - (0.4426X$1.10)]. Our breakeven points for this trade is 145.90 on the upside and 138.10 on the downside.

With a delta of -13.75, this condor is slightly bearish. 29 days to go is a short time. As long as SPY trades between the resistance and support of 1441 and 1406 (as mentioned in the weekly update), this trade is going to be profitable.

Since this is a 1:1 condor, we hope not to make any adjustment to it. Because our risk is low relative to our reward, we can afford to be more patient with this trade. Meaning we'll only start to think about closing this trade when we are about 10 days or less to expiration. We'll lock in our profit and reduce our risk by buying back the entire position when it is trading at about $0.20 or less. However, actual decision depends alot on actual market conditions. We'll inform you accordingly when it is the best time to close up this trade.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

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