19 Dec 2006

Close recommedation for SPY Double Diagonal initiated on 31 Oct 2006

Trade Summary

SPY at 141.82
9 days to Dec (Quarterly) expiration, 31 days to Jan expiration.

Sell SPY Jan 144 Call
Sell SPY Jan 133 Put
Buy SPY Dec (Quarterly) 142 Call
Buy SPY Dec (Quarterly) 135 Put

For a net price of $0.05 Debit or less.
Total margin required: n.a.
Profit or Loss: +$0.25

Trade Analysis

We are making use of the drop in SPY to close out this trade. We don't think it is wise to roll this Double Diagonal into a condor with the price being so close to our short call. Instead of stressing ourselves out with this position for the next 31 days, we'll close this trade, take our small profit and look for better trades.

We entered this trade on 31 Oct for $0.15 Debit. We rolled on 5 Dec using the Quarterly options for $0.45 credit. We'll close it today for $0.05 and lock in a $0.25 profit per trade. That is a (25/215 X 100%) 11.63% return on investment.

Good trading,

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

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

5 Dec 2006

Roll recommedation for SPY Double Diagonal initiated on 31 Oct 2006

Trade Summary

SPY at 141.63
9 days to Dec expiration, 22 days to Dec (Quarterly) expiration, 44 days to Jan expiration.

Sell SPY Dec (Quarterly) 142 Call
Sell SPY Dec (Quarterly) 135 Put
Buy SPY Dec 142 Call
Buy SPY Dec 135 Put

For a net price of $0.45 Credit or more.
Total margin required: roll

Trade Analysis

We are rolling this trade to collect some credit and to reduce risk. Specifically, we will be short Dec (quarterly) 135 put and Dec (quarterly) 142 call and long Jan 07 133 put and Jan 07 144 call for a net credit of $0.35. We are now having a Dec (quarterly)/Jan 07 double diagonal for a $0.35 credit.

Initially we intended to close up the entire trade for a small profit since the SPY is trading so close to our short call. However, noticing how the SPY climbed to new highs yesterday with drastically low volume and how the market internal today looks like, we decided that rolling this trade and collect some premium to reduce our risk is the wiser thing to do. We are basically extending our time with this trade. If the SPY continues to show strength into Jan 07, it is very likely that this trade will become a loser in Jan. However, we are starting to see some weakness in the broad market and thus the SPY might just trade below 142 into the new year. Now that we have collected $0.45 for this roll, we have greatly reduced our risk.

Our current position will not be worthless before the Dec (quarterly) options expire. As such, we will have no risk at all come Jan if we decide not to roll this trade into a Jan iron condor. The current Dec (quarterly)/Jan 07 roll is valued at $1.05. If we roll this trade into a Jan 07 iron condor, we can do it for a very good price. Whether we will do the roll or not depends on how far SPY is from our short options then. Thus, it makes sense for us to extend the time for this trade.

We are currently looking for potential positions for Jan 07. With IV this low, options are cheap and thus, we may enter a trade with too high a risk to offset the potential reward. You will be the first to know when we find a suitable position.

Good trading,

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

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

SPY Double Diagonal initiated on 31 Oct 1100EST

Trade Summary

SPY at 137.97
45 days to Dec expiration, 80 days to Jan expiration.

Buy SPY Jan 144 Call
Buy SPY Jan 133 Put
Sell SPY Dec 142 Call
Sell SPY Dec 135 Put

For a net price of $0.10 Debit or less.
Total margin required: $210.

Trade Analysis

It is difficult to find nice premium these days, partly due to the low volatility. That is why we are entering this double diagonal trade relatively early to capture most of December's time premium. With the broad market still in a bullish trend, this double diagonal is slight delta positive, at 1.33 delta. There are multiple support technically, therefore, we feel that a 135 short put should be far and safe enough.

There is a 52.14% probability of SPY expiring between 135 and 142. The current Nov/Dec roll stands at $1.15. If we can roll our double diagonal into an iron condor at this amount when the time comes, we'll have a short iron condor at a very nice price.

On the other hand, if things don't turn out the way we like, the most we can lose in this trade is $10. We are very unlikely to lose the entire $10 because our long Jan options will have significant time value. As such, we feel that this trade offers a very nice risk/reward.

We will constantly look out for new trades that fit our advisory criteria.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

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