Bear Call Spread Back In Shape

Filed under: Stock Market Talk, iron condor — optionwinner at 1:58 pm on Friday, July 25, 2008

Boy, what a ride up! The SPX rocketed over 90 points in just 6 trading days! We generally put in our spreads about a hundred points out based on current IV and usually about 50 plus days before expiry. 90 points in 1 direction in 6 trading days is not what we bargain for. We are glad that when the 1330/1355 Bear Call Spread was initiated, we decided to go more than 1 standard deviation out.

Anyway, our 1330/1335 position was threatened, to say the least. SPX went as high

as 1291 on Wednesday, 39 points away from our short call at 1330. Delta shot up to an intraday of 22 before closing at 20. The drop yesterday was a welcome relief. The trading session saw the SPX drop about 30 points from Wednesday’s close of 1282 and about 40 points from Wednesday’s intraday high. We have now a 78 points buffer while delta has dropped to 9.

Technically, SPX seemed to find resistance at the 30 day moving average (see chart). It managed to penetrate the moving average intraday but failed to close above it. Until that happens, our stance is still bearish, while not excluding possible bear market rallies, like the very strong one we’ve just had.