2006 SPX Credit Spread and Iron Condor Option Trading Update

With the first quarter behind us, it is time to review our trading of the last three months and assess where we are at.

The S&P 500 opened this quarter on January 3rd at 1,248.29 and closed out the first quarter yesterday afternoon at 1,294.83. This represents a 3.7% increase in this broad market index over the last three months. We have seen some recent new highs and everyone seems to be smiling on wall street.

Over this same period of time, I continued to trade  options on the SPX using vertical credit spreads and iron condors. Each month has been profitable. No adjustments have been called for. My realized return (closed trades) on risk capital for the first three months has been about 30%.

S&P 500 Q1 Return	3.7%
SPX Q1 Range	1,245 - 1,310
SPX Iron Condor %	32.9%

The SPX option trades consisted of three iron condors. The January spread covered the 1,200-1,210-1,310-1,320 strikes and was closed with a $1.00 profit.  In January, the index traded over a 50 point range, hitting a low of 1,245 and reaching a high of 1,295.  My short strikes of 1,210 on the low side and 1,310 on the high side remained safely away from the action.

A February spread was opened at 1,210-1,220-1,325-1,335, which resulted in a .95 profit.  During the month of February the SPX's low was 1,261 and it reached a high just shy of 1,298.  While the index covered about 37 points during the month, the short 1,220 and 1,325 strikes were far from the action at all times.

A March spread at 1,210-1,220-1,325-1,335 provided a .95 profit.  The index dropped to a low of 1,253 and soared to a high of 1,310, covering a 57 point range.  The short 1,220 put was comfortably away from the action.  Strategic placement of the short 1,325 call options kept them safe, plus the index did not reach it's monthly high until after the expiration on March 17th and the trade had been closed out the week prior to that date.

The total return for these three trades equates to a combined realized net profit of $2.90.  Each month a 10 point spread was traded.  The minimum opening credit for each of those three months was $1.20.  As such, the maximum capital at risk during each of the three months was 10 - 1.20, which equals $8.80.  The return on risk for those three months was $2.90 / $8.80 or a 32.9% return.

In deed, 2006 is off to a good start...

Recommended Resources

Anatomy of an Iron Condor Option Trade
Learn the basics of the iron condor and how it can
be used to trade large indices like the S&P 500

TheOptionClub.com Newsletter
The basics of options and option trading are
revealed in our free option tutorial.