Options Trading Newsletter - Issue #182 Options Today - Iron Condor SPY
Iron Condor SPY...
IRON CONDOR SPY…
Heavy sell off and then recovery seems to be the theme so far since the 5 August selldown. SPY had almost recovered everything and then gave it away. If you had taken the loss and not got back in, then you would had been pissed and if you had ride back the gains and did not sell after recovering it back, you would also be pissed. I am not sure which side are you at but it is not so nice either way.
As we see it, SPY could be trading over a wider range with resistance above and support below, so its not all bad if we just stay cool and get in a neutral trade and we benefit on both side of the price action as long as it does not breach these range.
Our trade details are explained below.
ES (5419)
S&P E-mini futures (ES) went down over 4% last week hitting daily 100 MA support. Monday was so far green but we need it to continue holding above the daily 100. If it does, it could comeback up to level around 5490-5560 before it’s next move. We see heavy resistance at level around 5665 and if the 100 daily supports breaks, we could likely see it tumbling down quickly to 5200 levels to find next support at daily 200 MA.
It could likely be a tug of war between bears and bulls in the next weeks, possibly ding donging around an upper and lower range. For now, its risky to go long and best to play on market volatility on both sides, even within the same day, sell the highs buy the lows, but keep it short as we will not really knows what the next day moves will be.
Trading range for the week is 5200 to 5550.
NQ (18458)
Instead of covering the NDX Index, we will be covering the E-mini Nasdaq 100 (NQ) from now on. NQ sold off almost 6% for the week, pretty bad week and is almost hitting back the 200 Daily MA. On Monday, it seems to have recovered some lost ground and as long as it does not go below the daily 200 MA, we could still see it holding above the August low. If it breaks below daily 200 MA, we could likely see it going lower below August low.
There could be consolation it coming back to 18800-19100 level before any next major move, to us possibly to the downside as any up move from now could be due for heavy selling. Going into the next Fed meeting on 18 September, bad news will be sell off days and good news will be savior for market exits/take profits.
Immediate resistance at 19100 and support at 200 MA Daily around 18300.
Trading range for the week is between 17500 to 19200.
HANG SENG INDEX (17444)
HSI broke down below 17500 last week, closing at 17444. As the US market went on a freefall on Friday, HSI was spared because the market was closed on evening Thursday and Friday following a typhoon. In anycase, we saw that it could likely come down lower on open in Monday following weak US market and even weaker Japan. In anycase, the drop into 17,000-17,200 level could be an opportunity in disguise as this is a good buyin zone which we were looking. If the US market recover today, it could pose bullish for HSI to pop back above 17500 levels.
We are still looking for HSI to go above 18,000 level once again and if it hits above 18202, it could soon go back to 19,000 level in time as its next target level up.
OPTIONS TODAY - NEUTRAL IRON CONDOR SPY
SPY is now trading at $545. The one standard deviation move for 18 October DTE is +/- $23 meaning a price range of $522 - $568. Its more or less in the middle of the range of $520 and $570, perfect range for a neutral Iron Condor trade. As we said it earlier, it could be a volatile weeks ahead and price could move up and down every other day within range of resistance, the previous all time high $565 and support at August low of $510.
Trade Entry (DTE 18 Oct)
Iron Condor comprise a Bull Put Spread and a Bear Call Spread.
Bull Put Spread - Sell a Put at $520 and buy a Put at $517.
Bear Call Spread - Sell a Call at $570 and buy a call at %573
Credit received is $100, with max loss of $200.
Trade Management
Technically, we do not really need to manage the trade if it trades within the range of the short call ($570) and short put ($520). Nevertheless, if it gets close to these strikes, you could roll the trade into time for additional premium, but as our width is only $3 wide, the premium could be limited. I would tend to leave it to play out in time and close the trade when we reach 50% of the max profit. Keeping it close to expiry could lead to tail risk especially if it is close to any side of the upper/lower band.
OPTIONS TODAY - UPDATE DIAGONAL ON MNST
MNST is on a roll, recovering quickly from last earnings gap down fully. We did enter into the diagonal trade at adjusted entry price of $48 Call (DTE 18Oct), $48.5 Short (DTE20 Sept) Call for $0.83. If you were early on Monday, you could have gotten in the trade at around same cost at $47 Call (18Oct), $48 Short Call (20Sept).
We could see MNST retracing back a bit and hopefully below $48 by 20 September so we can roll the short call for additional credit, at $49-$50. If it does not and continue to show very strong move, up, we will close the trade with 25% profit as the higher it moves ITM on the short call, the profits will come down lower eating into the profit of the long call.
We are bullish on MNST but our bullish diagonal would require it to go up at a slower pace not exceeding the strike of the short call at each expiry. The short call if expire OTM and similarly subsequent short call rolling, will eventually finance both the decay in the call and also the premium of the call.
OPTIONS TODAY - POSITION UPDATES SYNTHETIC STOCK ON XLU
XLU had a bit of selldown with the broader market last week. It closed at $75.91. It could be good for the short call if you sold any but negative to the synthetic stock position. In any case, the trade continues to be profitable and you could exit and reposition, if it comes back to $78 price level by mid September.
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