Hey ladies & gentlemen!
Doing something a little new here; I am putting up my trade and some rationale right after doing the trade. So here goes:
TRADE FOR WEEK ENDING FEBRUARY 24, 2012:
This trade is a condor. I know, I know – I really don’t do these often and am straying from my usual pattern. Straying just a little, but really not much. Think of what a condor trade is, two spread trades put together. Here are the details:
RUT
RUT 785 Put ($0.34)
RUT 795 Put $0.52
RUT 835 Call $0.72
RUT 845 Call ($0.24) This gives an overall Net Credit of $0.66 or 6.60% ROI
ANALYSIS
1. The 835 price level for the call side is just above the 6 month high price for the index.
2. The 795 price level for the put side is right at the 2nd tier support level (actual number is 793, but 795 strike price is the closest to the actual number).
3. My probability calculator put the odds at 88.62% of RUT ending up between the upper put and lower call.
4. The trend for the week so far has been downward for the RUT index. We went just over 2 Std. Dev. below the strike price at time of trade for the put side to help in protection and went just over 1 Std. Dev. on the call side.
5. The trend is slightly down, but not in a sharp downturn. We are losing a bit each day, and that is ok with our protection built in. We have used the Std. Dev. on both sides as protection. Also with the RUT settling Friday AM this takes some of the time risk out of the picture that would remain if we went to NDX or SPX.
6. I did look at the other index option – SPX and NDX. SPX had comparable ROI spreads, but the Friday AM settlement for the RUT pushed the RUT in front. The NDX just didn’t have the ROI needed. Wednesday morning the NDX was hitting 2.0 – 3.3 ROI on comparable spreads, so I nixed the NDX.
7. Summation:
a. The boundary strikes for the condor were at or above support and resistance levels for the RUT index
b. The probability calculator gave a favorable percent of this trade ending up in my favor
c. I was able to get good ROIs at 1.0 – 2.0 Std Dev away from the strike price
DISCLAIMER: Hashley Capital Management, LLC; as well as myself are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in options is risky and can result in loss of capital. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone.
Reach me @:
Email: hashleycm@yahoo.com
Twitter: @hashleycm
Or leave a comment on the blog
TTFN
Ash
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