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Sunday, May 27, 2012

Weekend Portfolio Analysis (05-27-2012)

We saw a very quiet week in spite of all the fears, and the S&P500 moved up 1.9%. A new Bear Call Spread was open on SPY (137/139 strikes) in order to mitigate some of the downside risk on the portfolio. And essentially the markets are now in no man's land.

The typical Oscillators I use (Stochastics, RSI, McClellan) are neither oversold nor overbought. If the markets decide to go down, they can go down pretty hard as the oversold conditions are non existent now. I still don't like the double exposure on the downside with two Bull Put Spreads open (125/127 SPY, 70/72 IWM). But I haven't received the premiums I wanted for them yet. The plan is to get rid of the 125/127 SPY spread as soon as it is only worth half the initial credit, and that would be around 0.20 - 0.22. I decided to leave them both in order to get the long weekend of time decay in my favor.

So, this is the plan for the week. If the markets decide to stay in this side ways / ranging pattern, I won't close anything. If the SPY 125/127 Credit Put Spread, loses value to about 0.20-0.22 I will be closing the position, and that could happen if markets move up a bit. If, on the other hand the markets go down fast, I will remain calm, and will only adjust the Credit Put Spreads if IWM hovers around 72 and/or SPY goes down to 127.

Taking a look at the portfolio Beta-Weighted vs the S&P500
(Click on image to enlarge)

There you have it. Profitability if SPX is between 1257 and 1376 in the next 19 days. Right now, we are sitting pretty much in the middle of that range so we could say this is so far a comfortable position.

Although on Monday US markets will be closed, this could be an exciting week with all the news that are coming: Consumer Confidence on Tuesday; ECB President Draghi presenting ESRB Annual Report on Wednesday; German Retails Sales and German Unemployment on Thursday, and the Non Farm Payrolls report on Friday. On top of that we could get more clarity as the Greek elections approach. Apparently a shift to the left should be perceived as something negative for Europe, as the leftists would reject austerity agreements with the troika and Greece would default, which could raise a wave of more fear in the European Union. The elections will be held on Sunday June 17, that is two days after the expiration date of our current positions, but according to how things shape up there, the markets might start reacting a bit in advance, reason why I want to eliminate the downside risk exposure on the portfolio closing at least one of the two Put Spreads before expiration.

Play it safe and trade well folks!

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