Condor Options

At yesterday’s close, we were showing a small loss on the two August positions still open, but we’re well within the profitability range for the month overall:

SPY August/September Calendar Spread #1 (89 Calls, Adjusted to 94/98/100/103)

 
Spread out as it is, this double double-calendar has helped keep our August-expiration risk curve in the black over a wide underlying price range. At the moment, though, we still have an unrealized loss of about 3.3%. The position delta at yesterday’s close was about 16.

SPY August/September Calendar Spread #2 (94 Calls, Adjusted to 94/102)

 
This position was trading at about break-even just before the bell yesterday, with a delta of about 8.

Taken together, our three August positions (including the closed CS#3) currently have an average return per trade over 10%.

SPY September/October Calendar Spread (101 Puts)

With the nearly 3% drop in the S&P 500 since we entered this trade, we’re currently looking at a paper loss of about 7% and a delta around 16. Both are well within our comfort zone, though, especially this early in the cycle. We’ll probably add another September position this week (perhaps even later today), with an eye to balancing out our overall portfolio risk—which has tilted toward the downside after yesterday’s sell-off:

The S&P 500 Index has been unable to close above the upper channel line we called out in the July 31 Update, despite challenging it multiple times over the past two weeks. And with the exception of an intraday probe higher on August 7, the 38.2% retracement of the market’s decline from the its October 2007 peak to its March 2009 low formed a brick wall (for now, at least) at SPX 1014. As long as the uptrend support line (shown in teal on the chart) through the August 12 low held on a closing price, we couldn’t rule out one last short squeeze, but it looks like yesterday’s plunge, low-volume though it was, has made a close above SPX 1015 by August expiration very unlikely (although it’s only one standard deviation away, based on current implied volatility).

It wouldn’t be surprising to see a reaction rally to as high as 995, but we now have resistance in the 990–993 range and a downside target of 956 (the June intraday high) to 962 (neckline of the inverse head-and-shoulders pattern, also noted in the July 31 Update). The latter support—along with the 50-day moving average, the long-term uptrend line, and the range anticipated by implied volatility (even after yesterday’s 15% jump in the VIX)—make it more than likely that SPY will finish the week well above our lower breakeven for August.