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January Trade Commentary - January 15th 2008

21 Jan 5:21am

With the recent downturn in the market for yet another session, it's looking like the SPY is going to pierce the lower breakeven price at 137.59. According to our rules, we have a standing conditional order for the autotraded positions to close the position out at the market if the SPY price violates the breakeven price. From a statistical perspective, this price movement (without any reversion to the mean price) is a rare event to say the least, but will happen from time to time.

With disappointing Intel results, along with all of the other bearish news on the economic front, the indices dropped considerably after hours. The Asian session got off to a weak start, but has since drifted towards the upside. We will continue to monitor the futures overnight and into the morning for any signs up a correction to the upside. If selling pressure lasts into the pre-market hours, we could be looking at another weak open on the U.S. exchanges again.

The selling was extremely strong into the close today, which usually leads to somewhat of a upside corrective bounce the following day, but this isn't always the case. It looks as if the stage is set for further disappointing earnings reports from market moving companies. Recession or not, we are trending down, that much is certain. Whether or not we are entering a bona fide bear market remains to be seen.

Many subscribers have wrote in asking if an Iron Condor is appropriate for a bear market. Our answer is that an Iron Condor is a sufficient strategy for any market -- it's market volatility that makes for favorable or unfavorable Iron Condor setups. While we may receive higher initial credits in volatile markets, the chances of price violating either short strike is higher as well. As stated before, the market will compensate risk properly. Vertical spreads (option spreads that are profitable if the price of an index, or stock, stays below or above a strike price) are another strategy in which directional bias is taken into account. We may issue these directional style spreads as 'bonus' trades for those who would like to incorporate a directional bias. We will continue to primarily trade probability based Iron Condor setups through these volatile markets. Practicing proper money management and following the trade rules are absolutely paramount in times like this. As stated many times before, variation is part of trading and the ability to be disciplined will reward those in the long term.

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indexoptiontrader

Index Option Trader is a monthly newsletter investing advisory service. We initiate Iron Condors on a variety of index ETF products each month. Our mission is to provide a service for investors to achieve consistent gains month after month, while maintaining a low risk, probabilistic approach to trading. Please visit us at www.indexoptiontrader.com