24 Nov 2008

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 20 Nov 2008

Trade Summary

SPY at 83.3 (+3.78) 25 days to Dec expiration.

Buy SPY Dec 75 Put Sell SPY Dec 73 Put

For a net price of $0.48 Debit or better.

Trade Analysis

Will be sent to you shortly

Trade History

20 Nov 2008

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 20 Nov 2008

Trade Summary

SPY at 80.73 (-0.77) 29 days to Dec expiration.

Sell SPY Dec 85 Call Buy SPY Dec 87 Call Sell SPY Dec 75 Put Buy SPY Dec 73 Put

For a net price of $1.42-1.45 Credit or better. Net margin required: $55 per position.

Trade Analysis

This is a very short-term position to take advantage of the high VIX. The VIX almost hit 80 earlier in the day, which is a retest of its recent all-time high. Do note that this is a highly aggressive trade, low-probability but potentially high returns. As such, we will want to get out of this trade as soon as we are profitable. We are betting on the SPX not going down by more than 40 points and not going up by more than 60 points in the next few days. While the SPX swims in between these 100 point-wide boundaries, we are betting on a drop in the VIX.

The risk we are undertaking for this trade is relatively low. Basically we are risking $55 to make $145 for each position. This figures give us a risk/reward ratio of 0.38. Of course we don’t expect too high a probability for success. What we are trying to do here is not to hold this trade till expiration. We should get out of this trade as soon as we are profitable after commissions.

This is a 10 SPY point-wide iron condor, which is roughly equal to 100 SPX points. The high VIX is the main reason we are able to get such high credit for a 29-day-long trade.

As you can see on the P&L chart below, our breakeven points are 86.45 on the upside and 73.55 on the downside and the probability of success stands at 28.59% currently.

As I mentioned earlier, we’ll try to keep this trade as short-term as possible because in the current environment, it is very possible the SPX will trade far beyond our breakeven points by Dec expiration. Even though our risk is low, we won’t want to make a loss in any case.

We will keep a close look at our current positions and keep you updated with any adjustments or closure.

Good trading,

Gary

Founder, Head Trader of MarketNeutralOptions www.MarketNeutralOptions.com

Please note: All MarketNeutralOptions Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for ‘DAY’ orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. Options involve risk and are not suitable for all investors.

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