July 28, 2017

Iron Condor Position and the Rally

We established our SPX short Iron Condor trade with a 140 point range. We were able to get in at the open before too much premium was sucked out. There are many ways to use this strategy and over the course of the next year or so I will randomly (when the situation arrives) talk about various ways to effectively use this strategy. More importantly, I will talk about the pitfalls of the strategy and how to appropriately manage positions gone astray. It should be an educational.

The rally today was unable to push the major indices into an overbought state. Recently, when the market rallied it would push the indices into an overbought state which typically signals a short-term decline or at minimum, a pause was near. Not this time. The sharp move today did not even push our shorter-term measures near an extreme state which means the market still has some room to run here.

If the market continues to climb higher I would expect to see some overhead pressure around 141 on SPY although we are not out of the woods at our current level. We saw three days of consolidation (3/8,3/9,3/12) where the market struggled and was very close to an overbought state. Obviously a move back to that level will put the major indices we follow in an overbought state so I will be watching closely to see if the move comes to fruition. If it does I will start thinking of stepping back in. Until then I will be patiently sitting on my hands waiting for an opportunity to arise.

Patience is the key, particularly with strategies such as the ETF Extremes. As Todd Harrison, states “opportunities are made up easier than losses”. So, if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Remember, this is a marathon not a sprint.

In the ETF Extremes we like to wait until the odds are heavily skewed in our favor so obviously trades are limited. This is just one approach/strategy to the market and just another way to diversify an portfolio.  It is not the “holy grail” of strategies (there isn’t one)but just one that takes advantage of specific extremes in the market. 

Overbought/Oversold levels for March 19, 2007

  • SPY – 55.0 (neutral)
  • DIA – 53.5 (neutral)
  • IWM – 57.6 (neutral)
  • QQQQ – 59.7 (neutral)
  • OIH – 74.2 (overbought)
  • GLD – 60.1 (neutral)

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Have a great night!