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Sunday, June 10, 2012

Weekend Porftolio Analysis (06-10-2012)

In spite of everybody having a bearish outlook last week, the markets managed to close one of the best weeks of the year with the S&P500 moving up by 3.8%. Like I've said before, I strongly believe the markets tend to be sort of random or at least highly unpredictable in the very short term, and days like the recent ones convince me more and more. Now, in the very long term it starts to make sense when you take up charts of many years, and analyze bear markets and their coincidence with periods of economic crisis and all that. But, in the very short term, it is really tough to guess where the market will move tomorrow, or the day after. Specially when it may react positively to apparently bad news and vice versa.

So, my task is to manage my risk and try to put probabilities in my favor.
There are two trades still open in the June portfolio which will face expiration this week:

IWM 72/70 Bull Put Spread

This position got to be really threatened on Monday when IWM hit 72.94 but sticking to my analysis I decided not to close nor adjust unless IWM hit 72.20. So, the trade is still there and with IWM sitting at 76.97 it looks comfortable for the next 5 days.

Bellow is the current profit picture and probability analysis made on the ThinkOrSwim platform

(Click on image to enlarge)

 Break even at 71.72 for IWM, and probability of success 96.95%. So, odds are in my favor and the plan is to let it expire worthless. However if IWM gets to hit 72.20 I will be adjusting/rolling this vertical using July options.



SPY 137/139 Bear Call Spread

With the break even point at SPY = 137.30 this position also looks comfortable to hold for the next five days.

(Click on image to enlarge)

Probability of success 86.58%. If the 137 level is hit this week, I will be adjusting/rolling over to July options, probably trying to sell the 140 or 141 strike Calls. Based on historical data, that level in the summer, for a bear month seems to be pretty comfortable. But if SPY 137 is not hit, I will simply let this position expire for full profit.

Combining both positions, the June portfolio Beta weighted looks like this:

(Click on image to enlarge)

Profitable outcome if SPX ends up this week between 1251 and 1366. And a probability of 82.66% for that to happen. Pretty comfortable I would say.

This week I also opened the first July 2012 position: a Credit Put Spread on SPY selling the 118 Put and buying the 116 Put. It was all done for a credit of 0.32 on Monday when the world seemed to be falling apart. After the rally of all the indices later on, this spread is looking really good and very far away from the market now. So, chances are, I won't have to touch it this week.

As for news releases we will have Retail Sales on Wednesday, CPI on Thursday, and Industrial Production on Friday. Those are the key reports plus the European headlines with Spain and their bailout and the Greek elections.

I would like to sell some July Calls this week probably on SPY or IWM. So, if Stochastics reach the 80 level and RSI hits 70 you will see me in action.

Take care folks!
Manage your risk!
And trade well. Good luck!


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