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Hi, guys. Today we’re going to do a SPY transaction. We’re actually going to sell an iron condor, and an iron condor is just a sale of a call, the purchase of a higher call, the sale of a put, and the purchase of a lower put, for the protection on that.
Like I said, the SPY is nice. I like to do iron condors on SPYs, because you can do a little more technical analysis. You can determine trends. I can go fairly far out of the money. Not as good as the RUT, or something like that, but those are highly volatile indexes. I like the SPY. It’s a little bit more controlled.
I just feel really comfortable. I’ve had really good luck with selling iron condors on the SPY. So, let’s take a look. I like to do a little bit more technical analysis on the SPY than I do on some of the other indexes, where I’m selling calendars. This is only because if we are in a bull market, or we think a bull market is coming, then I want to stay a little bit ahead of it. I don’t want to stay in the middle of it.
I think right now, we’re heading into this range. As I think I showed you on another CD, we’ve got this channel going on, where we’ve been in a channel for several months. It’s been following this downtrend channel. We’ve had a bit of a bull market here. We’ve run up a little bit. We’ve gone above this upper trend channel line, and now we’re coming back down to it.
I’ve created this little blue channel, just in case we do actually start moving up from here. It’s coming down to the bottom. Prices right now are around $132.51. It’s coming down to this blue line, down here. If that holds as support, this blue uptrend channel line might actually be the next trend in the SPY. We’ll just keep an eye on that.
Right now, it looks like resistance up here is pretty strong around 139. Remember that the support right around here becomes resistance. It’s been resistance here. It was resistance here. And it looks like it’s resistance here again.
If the indexes can break through that, we could see much more on the upside. The SPY right now, seems to be holding into there. There are some very long term channel lines here. Don’t let all of these lines confuse you. I’m just taking in long-term channel lines.
Let me go back a little bit. I’ll go back 20 years, and show you what I mean. I’ve got these uptrend channel lines going back to later 2002. This is a monthly chart. From 2002, all the way up to the present in 2008, you can see we’ve been in an uptrend.
Now, we’ve hit the upper trend channel of this very long-term 5 year trend channel line here, back in October of 2007. We’ve drifted all the way down to the lower end of the channel line, which is March of 2008. We dipped below that channel line, and then closed above it. Now we’re in the middle of the lower 25 percentile.
It just gives you an idea on a long-term basis, what the market is doing. Does that mean that was actually the bottom of the market? We don’t know. If it breaks through this downtrend channel line here, which was set back in 2003, we could be in for a nasty bear market. Back in 2002-2003, that was a nasty bear market. The SMP, the SPY, went from 140 down to 70. It cut it in half.
We’re going to keep an eye on that. These are monthly charts, so within a month, the SPY moved between 137 and 132, right down to the lower end of our monthly chart here. Which is about a 5-point range. Most of the months you can take a look at here – this one went from 153 on the high, to 142. It’s about a 9-point range, there.
This one was 151, this one was 145. I’m looking up here, at these high and low figures, when I hover my mouse over the price chart. This month was for June of 2007. It went from 151 to 145. That’s about a 6-point difference, high to low. This month was May of 2007. It went from 150 to 144. That’s about 6 points.
Let’s pick out a really big month. That was January of 2008. It went from 146 down to 125. That was a huge move. That was about 20 points on the SPY.
But the normal move is anywhere from 5 to 7 points. If you go back in time, to November of 2005, the high was 123, the low was 116. That’s about 7 points. Between 7 to 9 points is the normal range for the Spiders over time.
If we come in a little bit closer here, we can see that we’ve been in this downtrend channel here since October of last year. We’ve just kind of drifted down. We broke this uptrend channel line, here. Now we’re kind of going back down. Whether or not this trend channel line was prior resistance, whether it becomes support or not, we’re kind of right on the edge of it, so we’ll find out pretty soon.
In any case, if we do in fact have a 7 to 9 point range of movement in the SPY over the next month, then we want to plan accordingly. We’re going to want 5 points on either side of the current price, if we’re going to do an iron condor. The current price is 132. If we can get anything above 137, and anything below 127, I think we’ll be in good shape.
Of course, adjustments – it depends on the market conditions. Adjustments can and will be necessary. You can see that during this 30-day period here, the January move, about 25 points were shaven off the SPY here. That was a pretty heavy move. If you were in that move, you would have definitely had to do some adjustments, once it approached your breakevens.