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BookingAlpha Option Trading Advisory

Saturday, October 13, 2012

Weekend Portfolio Analysis (10-13-2012)

We saw mostly weakness this week with the S&P500 going from 1460.93 to a close on Friday at 1428.59, for a total loss of  2.21%. A new position was traded this week, but first let's talk about the October expiration cycle which comes to an end on Friday the 19th, that's 6 days from today.

The only position remaining in the October expiration cycle, the RUT 910/915 Bear call spread is looking really safe and stress free now.

(Click on image to enlarge)
Max profit already reached ($420) and very far from current price action, almost 100 points, which is roughly 12% of the RUT index. RUT would have to go up 12% this week in order to affect this position. According to ThinkOrSwim there is a 100% chance of success in this position. The plan is to let it expire worthless.

The trade opened this week was the SPY 137/135 November Bull Put Spread. The trade was opened for a credit of 0.26. It is showing no profit nor loss either and probability of success 79.57%.

(Click on Image to enlarge)

Plan for the week

I would like to sell a Credit Call Spread on SPY this week. But for that, I would like to see the long term uptrend intact. If Stochastics manage to get close to 80 and McClellan +150 I will try to sell SPY 152/154. 
If the markets keep going down, I would like to sell a RUT Bull Put spread. If the 750/740 Bull Put spread gets to be priced at 1.25, it will be a very attractive position to enter. That price for the spread is achievable if RUT falls to 800 this week and the VIX jumps to above 17. That position, with a break even point at RUT 748.75, is currently equivalent to SPY 131.81 using the Beta - Weighting technique in TOS.

If SPY  falls down to 137.20 I will be adjusting the November SPY spread lower down.

Market conditions right now

The SPX's uptrend channel is about to be broken.

(Click on image to enlarge)

We're right there at the lower end of the channel. Also facing horizontal support at this 1425 - 1435 area. If we keep going down, the next area that could provide some support is obviously the 1400 - 1410 zone.

Stochastics currently showing an oversold reading. McClellan close to oversold, but at -129, there is still some more room. Only 33.37% of stocks above their 20 SMA, that's close to oversold but still showing a bit of room to the downside.

So, obviously when it comes to room, there is. But I believe it is not much room. Less than 50 SPX points in my opinion, but anything could happen. One thing that concerns me a bit is that this week we stopped seeing the usual pattern of afternoon strength. Specially after 3pm. We had been seeing strength for months. This week was different, the behavior was weakness before the close. That concerns me a bit, as it may show some institutional selling. But again, I feel SPY 137 is still a safe place to sell Puts, only time will tell. If we get a bullish rebound now that earnings seasons becomes more active, then there will definitely be plenty of upside room.

Possible high impact news this week:

The week will be pretty busy in terms of reports, so be aware.

Sunday Night - China reports inflation numbers.
Monday - Retail Sales
Tuesday - Industrial Production
Wednesday - Building Permits
Thursday - Philadelphia Fed Survey
Friday - Existing Home Sales

Earnings will also be a focal point this week with plenty of important reports such as those coming from Google, IBM, Coca Cola, Intel, American Express, Goldman Sachs, eBay, Honeywell, and GE.

Good luck this week folks!

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  1. I just found your website and I am really glad for your commentaries and details about realized trades. It doesn't look like a work from lazy trader :-) , please continue like that.


  2. Haha, yes, I'm not a lazy person. But when it comes to trading I'm lazy in the sense that the less I trade the better, and the more I like it.
    Thanks for your comment Robert, they keep me motivated.
    Good to have you as a reader.