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| 12 Jan 2007 Close Recemmendation for SPX Iron Condor initiated on 7 Dec 06 Trade Summary
Trade Analysis We have been trying to close up this trade for the whole week. Finally we managed to get it filled at the target price of $0.20 or less. Similar to another SPY Jan condor, we feel that if we can rid of all risk and lock in almost the full profit, we should. The longer we stay in the trade, the more risk we are taking. We still can't get an iron condor for Feb filled at this point. Instead we got filled a RUT condor for Feb (the advisory was sent out earlier). It requires more margin but essentially it is similar to putting up two SPX condor. So for Feb, we'll have a RUT condor rather than a SPX condor. Of course we'll still try to get the SPX condor filled at the target price we are eyeing. But with only 33 days left to Feb expiration, it is unlikely that we can get a good risk reward SPX condor. With this closure, we have closed up all our Jan positions. All our recommendations for the expiration month of Jan 07 are profitable. We are now clear of Jan positions. We'll work out the bill for Jan over the weekend. Have a wonderful weekend! Gary Founder,
Head Trader of MarketNeutralOptions **********Trade History********** 7 Dec 2006 SPX Iron Condor initiated on 7 Dec 06 Trade Summary
Trade Analysis This is the first time a SPX iron condor appears in our advisory. The main reason why we avoid using SPX is getting it filled. As widely known, SPX, which is the option symbol index for S&P 500, is only listed on the CBOE. Because there is only one exchange listing the SPX, its bid/ask prices are usually pretty wide. Furthermore, there is no competition with other exchanges for SPX orders. A monopoly can set the price it wants to buy and sell and thus the difficulty in getting a good price. I got this order filled at $1.20. You should try to get it filled for between $1.10 or more but not less. Another reason why we usually avoid using SPX and use SPY as a proxy is because SPX has a wider price interval. While the SPY has $1 price intervals, the SPX has $5 price interval. SPY will be more suitable for smaller account since you can have a $1-wide or $2-wide condor. For the SPX your condor has to be in multiples of 5. That said, why do we use SPX this time? One of the reasons would be better risk/reward. IV is so low that there isn't much premium to drain in the SPY. To enter more trades in the SPY would increase commission cost. Therefore, using SPX is a good move. This iron condor is very market-neutral at the moment. It has a delta of only 0.41, which is as good as flat. Furthermore, we have a very wide profitable range that is almost a standard deviation wide. When I entered this trade, it has a probability of 62.08% of being profitable (see chart below). Our breakeven points for this trade would be 1378.8 and 1471.2.
The most important thing to not when trading SPX is that it stops trading on the third Thursday of every month. You won't be able to trade SPX on expiration day itself. Simply think of it as expiring one day earlier. Anyway, considering how difficult it is to get filled, we strive to close up the trade a week before expiration. Gary Founder,
Head Trader of MarketNeutralOptions
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