17 May 2007

Close Call Spread for SPY (Standard & Poors Dep Rec) Iron Condor initiated on 12 Apr 2007

Trade Summary

SPY at 151.42
0 days to May expiration.

Buy SPY May 147 Call
Sell SPY May 149 Call

For a net price of $2.00 Debit or better.
Profit or Loss: -$107 per trade.

Trade Analysis

This condor was one of those initated to take advantage of the sideway movement that never happened. We risked almost $1 for $1. To be specific, we risked $107 to make $93. This was a good condor with good lifespan and good risk/reward with good probability of success. However, it was entered at a wrong time. This condor didn't have a chance. Merely three days after we initiated this condor, the bulls breached the call side. We were comfortably about 25 SPX points away from our short call of 147 when we initiated this trade. In just three days, SPY was trading higher than 147! We risked 1 for 1, so this was a fair fight and this time we lose.

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

12 Apr 2007

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 12 Apr 2007

Trade Summary

SPY at 144.55
35 days to May expiration.

Sell SPY May 147 Call
Buy SPY May 149 Call
Sell SPY May 141 Put
Buy SPY May 139 Put

For a net price of $0.93 Credit or better.
Total margin required: $107.

Trade Analysis

With 35 days to go, this condor offers very good risk/reward. We had been trying to get this filled since yesterday but were unsuccessful. In fact, we were trying to get the price of $0.95 for this trade. We couldn't get it filled. So we lowered it a little and that does the magic. $0.93 credit. Kinda weird figure if you ask me. Anyway, the most important aspect of this trade is that it has a good chance to make good money.

As you can see from the chart below, the probability that this trade is profitable by May expiration is around 50.89%. Our breakeven points are 147.93 on the upside and 140.07 on the downside. We expect this condor to decay very quickly after next week. Seriously, we have no idea how the SPY is going to move for the next 35 days. If could continue to go up or yesterday's down move could be the start of the comeback of the bears. Either way, with the SPY currently at 144.55, we are about more than 3 points away from our short call and about 4.5 points away from our short put. This condor has a profitable range of more than 7 points. That is equivalent to 70 plus points on the SPX.

On the technical front, the SPY has resistance at the 145.5 level, which was the prior multi-year high back in Feb 2007 (before the 28 Feb crash). It is likely that many people got burnt on 28 Feb and many would simply wait for it to go back to this level to breakeven. I'm not suggesting that SPY cannot break through this 145.5 resistance. But it's a resistance that will be a big test to the bulls. On the downside, SPY has multiple support in the form of its 20-day, 50-day,100-day moving averages. Furthermore, there is now a upside trendline for the SPY. All these will serve as support for the SPY. With all these in mind, we believe that this condor is a good one. We'll be in touch on when to close this trade.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

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