FEB RUT condor (-22% loss MN trade)

Trade Summary

RUT at 697.48
29 days to Feb expiration.

Sell RUT Feb 760 Call
Buy RUT Feb 770 Call
Sell RUT Feb 630 Put
Buy RUT Feb 620 Put

For a net price of $2.20 Credit or better. [tos auto-trade participants were filled at $2.20]
Total margin required/total risk: $780 per entry.

Trade Analysis

The best time to initiate an iron condor trade will be a day like today, where implied volatility spikes higher. Actually, we were queuing for a SPX iron condor for a little diversification in our portfolio. But we simply couldn't get it filled despite shaving off $0.30 off the mid-price! As we were waiting, this RUT iron condor got filled.

This is our second RUT iron condor for Feb expiration. Our breakeven points for this trade are 762.20 on the upside and 627.80 on the downside. Looking at the P&L chart below, we can see that this trade currently has a probability of being successful of 72.9%, which is more than 1 standard deviation of 68%. This trade is very neutral at the moment with only -1.05 delta.

This iron condor has a profitable range of more than 130 RUT points. The daily chart of the RUT looks terrible. The Jun and Aug 2006 highs at around the 700 level seems to be the next support level to be tested right now. If RUT were to close below 700, then the next support we can see will be from the lows in Jun and Aug 2006 at around 670 level.

Since every broken support becomes a resistance, there are multiple resistance levels for the RUT. The bulls will have a hard time trying to break through all these resistance levels.

It is widely expected that the Fed will cut interest rates again in the upcoming FOMC meeting at the end of this month. Therefore, we should expect some wide swings after the meeting.

Since we are risking $780 to make $220 for each position we put up, the risk/reward ratio (R3) of this trade is 3.55, which makes this iron condor a high R3 iron condor. As usual, with high R3 comes more proactive management.

We shall set our alarm at about 30 points (approximately 4% of current price) away from our short strikes. Since we are short 760 call and 630 put, we shall be ready to adjust this trade when RUT trades higher than 730 or lower than 660.

When the need for any adjustments arises, I'll inform you accordingly. For now, let's enjoy time decay!

1/22/08
btc +1 vertical RUT FEB 630/620 PUT @3.85 (mark 657.41)
orignally sold @1.05
total loss for PUT 2.80

1/23/08
btc +1 vertical RUT FEB 760/770 CALL @.20
originally sold @1.25
net credit 1.05 for CALL
Condor postion yeilded a 1.75 loss per contract (1) or -22% loss
Adjustments were mine not MN advisory, MN rolled the PUT vertical down in FEB and is still holding the CALL vertical.