Condor Options

Earlier this morning, we described how our IYR July/August 61 calendar spread came under pressure yesterday. The share price fell in the first five minutes of trading today, but then it began to rally, making us reluctant to adjust the trade. The rally didn’t go very far, but we decided to sit tight until after the release of the May pending home-sales numbers.

And then,…nothing happened. Although pending home sales fell more in May than analysts had expected, the NAR issued the standard forecast: the market will remain soft this year and then recover in 2009. Ho hum.

The next development likely to affect our position is the housing bill now in the Senate. We could hang on to our single-strike calendar, betting that the bill will pass and the market will like it–but that’s not how this strategy works. We take a non-directional stance and follow our trading rules to maximize our chances of profiting from time decay.

So, with IYR trading below our adjustment point, we’re going ahead with the trade. With support at the $59 level broken, we want to  slide the lower end of our profit range down below the next support level, which is at the ETF’s January low of $56.74. To accomplish this, we’re rolling half of our position at 61 down to 57, as follows:

-2 IYR Aug 61 put
+2 IYR July 61 put
for a net credit of $1.05;

+2 IYR Aug 57 put
-2 IYR July 57 put
for a net debit of $1.25.

Note that two contracts per leg represents half of our original position. Now we have a double-calendar with break-evens at $55.80 and $62.40.