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This is going to be part of our trade selection and strategies CD. We have already added an EEM, an IWM, and a SPY position. Now we’re going to take a look at the Diamonds.
The Diamonds is the ETF for the Dow Jones Industrial Average. If you take a look at the indices over here, you can see that the Dow Jones Industrial Average is at 12,776. The Diamonds try to mimic the price of the Dow Jones Industrial Average. It’s about as close as it can get. There are some adjustments that are made to the index itself, to the ETF. It’s pretty close to it, so if the Dow Jones is trading at 12,775, the Diamonds are pretty close to it. It’s at 12,776.
You take the ETF, you multiply it by 100, and you get the 12,767, which is only about ten points off the actual index. It tracks the Dow Jones Industrial Average pretty closely. We’ve been in a down trend here, and this is how I add all of my positions.
We’ve been in a down trend. You can see the channel that I’ve created here goes back to about October of last year. What I would like to do is, the positions that we’ve had, previous to this were based on the support and the resistance lines in this channel. That could determine where prices could fall into, as we were going into this down channel.
We may have turned the corner here, and we may now be following this blue up channel trend line, which I drew a few weeks ago. It looks like there were some points here that were actually hit. There were some support points here that it actually came down to. This was a prior resistance point here, this 75% channel line. It became support in here.
Now that resistance has become support, I’m thinking that perhaps the blue channel line, now, is the new uptrend channel. If that is the case, and it looks like we’re starting a new uptrend here, I’d want to set my iron condor so that it’s around 133 on the upside.
That’s above the blue channel line, and these channel lines are only guidelines. The price can do anything it wants, really. It can go up; it can go way above this. It can go way below this. It doesn’t really matter. Because it’s a very liquid market, and there are many players in the market, things do tend to go in channels. That’s how we’re going to play them.
133 on the upside, and 122 on the downside seems like it would be a good support level. 133 on the resistance. That’s how I’ve set this trade up. I’ve actually gone in and right clicked, brought up my iron condor. I’m selling an iron condor.
I want to get up around the 131-132, if I can get a decent price for it, that’s fine. We’re going to right click on this. We’re going to “Sell,” and “Iron condor.” It brings up my call strike prices immediately. I’ve got the 131, the 132, but I like to go two points apart, so I’ll go 131, 133. Then, on the put side, I think I said our support was right around 122. We can go as high as 123, even 124. Whatever we can get the best price on.
The 123 doesn’t look too bad. Let’s go 123, 121, on the downside. That gives us about an 86 cent credit, which is pretty good. It might be a little bit rich. Maybe we can go a little bit higher on the upside, because I think there’s more upside potential on this index, than downside risk.
If we go 132, 134, and we can even bring this up – I like to be around 70 cents here, so we can bring this up to 124, and 122. Now, we have about a 79 cent credit that we can get, and I think that’s probably about right.
We’re going do 3 contracts on this. On the very next step, after we get this into our order entry window here, we’re going to take a look, and analyze it as a duplicate trade by itself. We will take a look and see exactly where we are in this picture. If we like this picture, then we are going to go ahead and do the trade.
Our breakeven is down here around 123.25, on the down side. On the upside, we’re right around 132.82, which equates to $13,282, on the Dow. It looks that wouldn’t be too bad. With 122.83, we’re up in here, which will probably hit before this expiration date. But as prices go up, we can adjust our position as well.
We just want to make sure we’re getting a fairly decent credit on the downside, which we are. We’re selling the 124 at $1.19. We’re buying the 122 at 79, which should be fine.