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Saturday, July 28, 2012

Weekend Portfolio Analysis (07-28-2012)

A very interesting week in the US markets where most traders, newsletters, information sources etc seemed to be bearish and the market, as usual, did contrary to what was mostly expected. The week started in a low note following the negative session last Friday. That plus all the pessimism in the world economy right now and the comparison with last year's summer that most traders seemed to be making had most specialists looking at the Bear side. Then Thursday and Friday came really strong fooling more than one out there and the S&P500 ended the week with a +1.8% performance.

On Tuesday, July 24, I opened a RUT 700/690 Bull Put Spread taking into account the oversold conditions of the market at the time and the apparently extreme pessimism everywhere. Fortunately, I timed the market almost perfectly right before the reversal. Now, the August portfolio has two RUT credit spreads, that are forming an Iron Condor:

(Click on image to enlarge)

With breakeven points below 700 and above 860 for RUT, the only way this position losses money is if RUT makes a new high for the year in the next 20 days or a new low for the year. 93.69% chance of profitable expiration. That feels pretty comfortable to me going forward, and looking back there is nothing I would change on the way I have managed these trades. Both entries had almost perfect timing and the overall position now, with such a wide range just feels really good.

With only 20 days to expiration, no more positions will be entered in the August cycle. If the market moves to overbought levels this week, I will look into entering a September Bear Call Spread. My favorite candidate at this moment is the 146/148 SPY spread. Although the market still has more upside room, I am mostly bearish on September so I prefer selling Calls. September is perhaps the worst performing month in statistical terms plus there are just too many concerns in the world economy at this point to be a convinced bullish in the summer. The market is neither oversold nor overbought right now, and as you know, that to me is no man's land. I will stay on the sidelines and won't enter new positions until an extreme is reached. But my preference is to sell September Calls like I said.

In terms of news this is going to be an intense week of economic releases:
Monday - Treasury releases quarterly financing estimates
Tuesday - Consumer confidence and German unemployment
Wednesday - ISM Manufacturing
Thursday - Initial claims
Friday - Unemployment, Non-farm Payrolls, ISM non-manufacturing

Definitely enough fuel to cause significant movements.
Good luck!

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