Posted by: Tyson Heyn | October 14, 2009

Rhyming Markets

As I wrote on Sunday, my concern this week has been the call-side spread of my October Long Iron Condor (LIC). After today’s 1.73% lift in $SPY, I’m glad to have profitably offloaded 2/3 of this side of the position before the big run-up.

So, what about the remaining 1/3?  Moving from 109.32 (today’s closing price for SPY) to 110.00 (the inner leg of my call-side spread) could easily happen tomorrow.  The break-even level for this spread–at 110.23–isn’t too much further away and remains well within one standard deviation of today’s closing price.

While history hardly repeats itself exactly, it can rhyme.  And with that idea in mind, I offer a day-to-day comparison of October’s performance for SPY versus September’s.  I’ve aligned these two charts (top, Sep.; bottom, Oct.) by options expiration dates:

October reflects September for SPY

October reflects September for SPY

In brief, there’s a remarkable similarity.  Today, just like last month’s Wednesday during options expiration week, jumped over 1% (1.73% vs. 1.15%).  Today’s lift adds to a 7-of-8 day up-trend during the first half of the month…just like September’s aligned 8-of-9 up-trend.

In September, such an eventful Wednesday was followed by modest profit-taking through options expiration.  I wouldn’t be surprised if that translates over to this month as well–or at least give us a fighting chance to stay under 110 through Friday.

So, I am keeping my finger on the trigger to dispose of the remaining third of this spread, but I’m not too worried yet.  One advantage of waiting to dispose of the last part of this spread is time decay–my new break-even point is moving from Wednesday’s level of 108.25 to 108.7 tomorrow.  At the start of Friday, that’ll be 109.3…and 110 at the end.  So, if it seems that there’s a fair shot at the waiting game paying off, I’ll keep doing that.  If we see a steady ramp-up in price tomorrow, I’ll probably exit early.

As usual, watch for updates and commentary during the week by following me on Twitter.

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