We are proud to announce that we locked in a 10% profit today in our SPX Short Iron Condor for the July Expiration Cycle.
The recent rally pushed the underlying SPX ever so closer to the short call strike of our July Short Iron Condor position. Even though the market was/is in an overbought state (which typically means that upside momentum is limited) we decided to take off the call spread of the Iron Condor strategy today. With two days of the Bernanke congressional testimony ahead and the historically bullish response that follows, we felt it was advantageous to exit the call side of the position. The last 7 times (since 2004) the semi-annual Fed chair testimony happened the market rallied sharply. We are constantly seeking to reduce risk and protect capital and feel the decision to take a 10% profit was in the best interest of our strategy.
As a result of the aforementioned our strategy made 10% in just over three weeks. After a rough April (and many lessons learned) the strategy has seen three straight expiration cycle gains. The difference now, the VIX (investor’s fear gauge) is above 15 which allows us to bring in more premium and also widen our range. Even with the recent volatility, our 160 point range was never in a serious threat of being breached and by taking off our position today we eliminated any chance of this type of scenario. BAc in April we were using a 100 point range which will never happen again. Our plan is to choose a range that is at least 140 points and preferably 160-180. Yes, we bring in less premium, but the risk of loss is decreased dramatically. As far as we know we are the only service that offers an Iron Condor strategy with such a wide range.
Earlier in the day the call side was seliing for roughly $.50 so another day like today could have decreased our profits or possibly led to a loss. This is why, particularly in the Iron Condor strategy, that you do not mess around during options expiration week. We learned our lesson the hard way in April and will never put the strategy through that again! Take your profits and move on to the next month. As I always say, this is a marathon and not a sprint. Furthermore, as the old stock adage goes: It’s never wrong to take a profit! Enjoy the gains!
Overbought/Oversold levels for July 17, 2007
- SPY - 71.7 (overbought)
- DIA - 83.8 (very overbought)
- QQQQ - 86.2 (very overbought)
- IWM - 86.2 (very overbought)
- OIH - 35.5 (neutral)
- GLD - 61.3 (neutral)
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Have a wonderful night!
Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com