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Saturday, September 1, 2012

Weekend Portfolio Analysis (09-01-2012)

Again, another week of mostly sideways action, with SPX opening the week at 1411.13 and closing yesterday at 1406.58, for a -0.3% performance. The low volumes persist with usual days between 60 million and 100 million shares on SPY, although we saw a little spike to 151 million shares on Friday, still far from the more common 200 million shares per day, but maybe a sign that normal activity will resume from Tuesday on.

Following the plan laid out last week, I limited myself to just managing my existing positions. No new positions were open this week. The plan for the week was to get rid of the RUT 780/775 Bull Put spread and the SPY 145/147 Bear Call spread if I could close them both the same day for a small profit that covered commission costs. But unfortunately, that didn't happen. Although both positions improved thanks to the sideways action and the time decay, it was not possible to close them both for the desired profit. Let's analyze the positions one by one.

First the SPY 145/147 Call Credit spread. This position was opened for a 0.32 credit and it is now priced at 0.24. That's a 0.08 temporary profit that represents +$128 profit in 16 contracts per leg. An improvement from the -$56 balance that it was showing when the week started.

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76.95% chance of successful expiration in 20 days.

The RUT 780/775 Put Credit spread. Originally opened for a credit of 0.60, it is now priced exactly at 0.60. So there is no temporary profit nor loss on it, which represents an improvement over the -$240 loss that it was showing last week. Profit picture below:

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77.45% chance of successful expiration in 3 weeks.

Finally the RUT 860/865 Credit Call spread, which was initially sold for 0.65 and it is now priced at 0.175, is showing a profit of +$285 for 6 spreads, which is up from +$255 that it presented last week. This is like I said last week, the most comfortable position in the portfolio and the one I want to take until expiration for full profit of $390.

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87.37% chance of successful expiration in three weeks.
Combining both RUT positions we have an Iron Condor, with a maximum possible return of $750 on a maximum risk of $2250 and a 66.05% chance of successful expiration, this is what many experienced traders would regard as an aggressive Iron Condor.

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Plan for the week

The plan this week is to close the RUT 780/775 spread and the SPY 145/147. I need a combined profit of $132 in those positions in order to cover my commissions costs ($66 were spent entering the positions, and another $66 will be spent for closing them). The portfolio entered the weekend with a 32.48 Theta. That is 32.48 dollars daily in my favor due to time decay. The markets will resume their activity on Tuesday the 4th and by then we will only be 17 days away from expiration. I think chances are good for me to close these two positions for the combined profit I want ($132 or higher). The other position, RUT 860/865, as I said, that one, I will hold it until expiration.

When the markets open on Tuesday we will be 45 days to October expiration. So, as usual, I would like to enter my first trade of the October cycle this week. But in order to do that I need price action to enter either overbought or oversold territory.

Market conditions right now

The SPX index is still inside the uptrend channel mentioned last week. It is closer to the bottom of the channel but still solidly in the uptrend. Above the 50 EMA, 100 EMA and 200 EMA. Stochastics are nor overbought nor oversold either, and the McClellan oscillator is showing a neutral reading at -5.5, very far from oversold and overbought conditions.

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Obviously, we continue to be in no man's land. With 52.28% of stocks above their 20 SMA and 60.79% above their 50 SMA, the markets have enough room to move either way, and do it hard. Careful with September which is one of the most bearish months statistically speaking. We have been trading in a small range for a while and a good explosion might follow anytime. I would like to open a new position this week, but I will only do it if we reach either an oversold or an overbought market.

Possible high impact news this week:
Monday - ECB President Draghi's Speech at 1:30pm
Tuesday - US, ISM Manufacturing PMI at 2:00pm
Thursday - US, ISM Non-Manufacturing at 10:00am
Friday - Unemployment at 8:30am

Have a nice long weekend, and a better trading next week.


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