15 Dec 2008

RUT (Russell 2000 Index) Iron Condor initiated on 19 Nov 2008

Trade Summary

RUT at 455.60 (-12.90) 3 days to Dec expiration.

Buy RUT Dec 540 Call Sell RUT Dec 550 Call Buy RUT Dec 340 Put Sell RUT Dec 330 Put

For a net price of $0.15-0.18 Debit or better. Profit or Loss: +$217 per entry.

Trade Analysis

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Trade History

19 Nov 2008

RUT (Russell 2000 Index) Iron Condor initiated on 19 Nov 2008

Trade Summary

RUT at 444.40 (-3.32) 29 days to Dec expiration.

Sell RUT Dec 540 Call Buy RUT Dec 550 Call Sell RUT Dec 340 Put Buy RUT Dec 330 Put

For a net price of $2.30-$2.35 Credit or better. Net margin required: $770 per entry.

Trade Analysis

This is our first trade for December. Although we have a good November, I believe it is still very important for us to trade in small numbers in this volatile environment. We still need to watch our risk closely. There are a few pending news-driven events to move the market in an erratic manner in the coming days. Whether the auto-industry will be bailed out eventually will swing the market in a big way. I wish I know what will happen. If the government decided to bail the big 3 up, there may be a major rally. However, on the other hand, should any 1 of the big 3 go, there may be a new low in the market. We are trying to restrict the number of positions we have until this issue gets sorted out. So this first trade for Dec is our first tap in the water.

Looking at this iron condor technically, we are risking $770 to make $230 for each position you put up.This translate to a risk/reward ratio (R3) of 3.35. As you can see from the P&L chart below, our breakeven points are 542.3 on the upside and 337.7 on the downside with a probability of 72.24% of success.

Of course we won’t wait until it is too late to adjust our trade. We should be pretty prepared that a single day’s move may be all it takes to kill our condor have throw us into the maximum loss. So far, we have never suffered the maximum loss and we are not going to let it happen. As usual, we will set up our mental stop so that we have a mental guide on when to adjust.

Since we are short the 540 call and the 340 put, we shall place a buffer of about 50 points from our shorts. This means we should be on high alert when the RUT breaches 490 or 390. It doesn’t mean that we must and will make an adjustment when the RUT trades pass 490 or 390 but it does mean that we have to be prepared to make an adjustment.

We are constantly looking for new trades for Dec. However, in view of the current uncertainty that we are facing in the market, we want to be extremely careful and short-term with our positions. So be prepared for quick trades that may last only days or even trades that are directional in nature. Again, we may leg-in into an iron condor or we may do simply one side of the market via a vertical spread.

Good trading,

Gary

Founder, Head Trader of MarketNeutralOptions www.MarketNeutralOptions.com

Kg. Bahru #7, Singapore 160019, SINGAPORE