Monday March 8, 2010

The markets are open I have my trading platform loaded.  I see a myriad of flashing green and red lights on my screen.  I must say I am a bit uneasy but I am moving forward.  This is another test for me in the process of getting out and staying out of my comfort zone.  Today is the first day I am going to start building my April portfolio. I am looking at an option chain of the SPY.  The spreads are tight.  Looking at the April options, there are 39 DTE.  The daily price chart shows we are close to a yearly high.  I want to keep the call side of the trade closer to the current price, thinking the prior high will be a significant resistance point.  With that I routed the 116/118, 109/107 for 94 cents, 2 pennies better than the mid.  The 116 is a bit close to current price but I like the credit and feel the prior high could be significant.

The DIA has a similar pattern.  Think I will be a bit more cautious and route calls a higher than resistance. With the Diamonds trading around 106.32,  I routed the 108/110, 100/98 for 84 cents.  A bit higher than the mid, but I am not in a big rush to get a fill.  I want premium.   I am looking to sell a call for as much premium as I can get but I am also looking at the probability of expiring.  What this means is simply what percent chance does this option have of expiring in the money.  I want as low a probability as I can get while still getting some premium for the option.  I am looking for 90 cents for the iron condor but I am not going to get it.

The EEM is a product I want to trade double calendars.  There are no May options yet so I am going to wait until March expiration.

The IWM is at yearly highs.  I have decided to do a double calendar on this product.  This is simply an out-of-the money (OTM) call and put calendar routed as a single trade.  Like the DIA & SPY, I am a bit concerned about this big advance and feel we are due for a pullback.  Looking at April/May options I like the risk graph of the 65 put and 68 call double calendar.  This trade was routed for a debit of $1.49, again a few cents better than the mid price.

I left around noon for the day.  I was filled on the IWM double calendar while the other iron condors were still working.  The image below is the risk graph of the trade.  The vertical axis is profit/loss; the horizontal axis is the price.  The curved red line is the profit/loss of the trade at April expiration.  The white curved line is the profit/loss today (March 9); the vertical red dotted line is the closing price of the IWM.  The trade is already slightly profitable, which is not usually the case.  The IWM has really tight bid/ask spreads on its options and I was aggressive on my entry price.  That has helped me already in the trade.