2006 S&P 500 Credit Spread and Iron Condor Stock Option Trading Update

With the third quarter coming to a close, we again pause to see how our SPX Credit Spread strategy has fared.

The third quarter started off to the downside in early July, until the S&P 500 found a bottom near 1,220.  From there, the index began a decidedly bullish run approaching it's prior high from May '06, where it appears it will finish out this month.  This was a good quarter for buy 'n hold investors, as they saw their accounts regain the losses they experienced last quarter. 

S&P 500 Third Quarter Statistics S&P 500 3rd Qtr Return 5.1% S&P 500 3rd Qtr Range 1,224.54 - 1,339.88 SPX Credit Sprd Return 28%     S&P 500 YTD Return 6.9% S&P 500 YTD Range 1,245 - 1,339.88 SPX Credit Sprd YTD Return 64.5%

Third Quarter Stock Option Trading Journal      July '06 SPX Option Position      BTO SPX Jul 1,315 Call      STO SPX Jul 1,305 Call      BTO SPX Jul 1,125 Put       STO SPX Jul 1,135 Put      Opened for Credit of $1.35 (Max Return 13.5%)      This 10 point July condor was closed at a cost of       $0.25, leaving us with a $1.10 profit for a 11% return      on risk.      Aug '06 SPX Option Position      BTO SPX Aug 1,330 Call      STO SPX Aug 1,320 Call      BTO SPX Aug 1,140 Put      STO SPX Aug 1,150 Put      Opened for Credit of $1.10 (Max Return 11.0%)      This 10 point August option spread was closed for a      .05 debit, leaving us with $1.05 profit or 10.5%      return on risk.      Sept '06 SPX Option Position      BTO SPX Sep 1,345 Call      STO SPX Sep 1,335 Call      Opened for Credit of $0.90 (Max Return 9.0%)      We missed one or two opportunities to open a      corresponding put spread.  Orders had been placed,      but not filled.  Rather than chasing the trade, we      simply maintained our Bear Call Spread until closing      it for a 0.25 debit, or a profit of .65.  That's a      6.5% return.      SECOND QUARTER SUMMARY      The same amount of capital was traded each month,      making it comparison of returns straight forward.                July      11.0%                August    10.5%                Sept.     06.5%                Quarterly 28.0%

The third quarter marked a return to low anxiety trading.  There was no aberrant market movement and the index maintained itself within a well defined channel.  These are ideal conditions for our strategy of selling premium and allowed us to outperform the index 8 to 1 over the three months, despite the fact the S&P 500 was on a consistently bullish move through the entirety of the quarter.

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