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Saturday, September 22, 2012

Weekend Portfolio Analysis (09-22-2012)

In line with my expectations outlined during last Weekend Portfolio Analysis, the S&P500 saw some digestion of its recent gains, and ended up with a small loss this week of -0.3%.

There was no new trade on the portfolio, although I had a RUT 800/765 Bull Put Spread order entered for 0.65 credit which never got triggered. This spread got to be priced at 0.60 on Thursday, and it looked like a decent trade, specially considering I needed to balance my double upside exposure. But I was greedy, and my order never got filled.

Let's analyze the two positions currently in the October expiration cycle:

The SPY 149/151 Bear Call Spread got some relief this week, thanks to the sideways action and the Theta decay.

(Click on image to enlarge)

There is a temporary loss of $85 which is quite an improvement over the $544 loss that it was showing last week. Probability of success at expiration 74.09%.


The  RUT 910/915 Bear Call Spread is also looking good.

(Click on image to enlarge)


Temporary profit of +$315 and probability of success 90.92% at expiration.


Plan for the week

So, there are still two Bear Call positions in the October portfolio. Double upside, and no downside exposure. The risk is not balanced.

I still want to sell some Puts, probably the 800/795 Credit Put Spread or the 805/800 one. That would mitigate my current double upside exposure. We are now 27 days to expiration, so I might have to be happy with less than a 0.60 credit. In any case I will enter this trade if RUT retraces back bellow 850 and I can get a decent credit of 0.50 or more.

I also want to close the SPY 149/151 spread. I didn't do it this week, as I never got to have a positive balance on the trade. I would like to close it for a breakeven result or a small gain and I think I still have chances to get some more theta decay here before the market breaks out again. If SPY rallies to 148.80 this week, I'll adjust further up using October options, probably selling the 151 or 152 strike price.

As for the RUT 910/915 I think I won't have to touch it this week.


Market conditions right now

The SPX is still in this mid term uptrend, solidly positioned above all major moving averages. We are still hovering around the upper end of the uptrend channel. With the sideways and slightly bearish price action this week, we are not overbought anymore. Stochastics bellow 80 and McClellan around 7, are showing there's room for this market to advance. The advance, if any, will probably be slow < 2% as 72.11% of stocks are already above their 20 SMA, and 77.05% above their 50 SMA.

(Click on image to enlarge)


Thursday showed us that the bid in this market is strong. And that the big money is willing to put more money to work on any slight pull back. The end of the quarter is approaching and this might lead to some performance chasing by the big funds. Earnings season is getting closer and there has been a strong bid before earnings seasons for the past couple years, causing stocks to rally a bit before earnings.

We are not at an extreme level anymore. And as you know, when we are not at extreme levels I don't like to forecast market direction, because I suck at it. I believe there's a strong bid on this market, but we are also hitting the upper end of an uptrend channel, although we are not technically overbought. This leads me to believe the move this week, be it upwards or downwards will be rather small < 2%.


Possible high impact news this week:


Tuesday - US Consumer Confidence 10:00am.
Thursday - US GDP, Durables ex Defence, Durable Goods Orders, Durables ex Transport all of them at 8:30am.
Friday - Europe Flash HICP 5:00am. US Personal spending and Personal Income 8:30am. Chicago PMI 9:45AM.


Good luck this week folks!




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