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BookingAlpha Option Trading Advisory

Sunday, October 28, 2012

Weekend Portfolio Analysis (2012-10-28)

The S&P500 started the week at 1433.21 and closed at 1403.28 for a loss of -2.09%. Pretty much in line with my analysis last weekend. I took advantage of the weakness on Tuesday and  opened a Bull put spread with RUT 750/745 using November options.

The position is working out nicely

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Temporary profit of $99 out of a possible $255. Probability of success 93.91%.

The other position is the SPY 137/135 Bull Put spread which is looking like below:

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Probability of success 74.52% and unrealized loss of $45. Obviously a little affected with the move this week but nothing out of control.

Plan for the week

Ok, so at this point I have two Bull Put spreads in the portfolio for the November expiration cycle. That is double downside exposure and no Bear Call positions. I obviously don't like that so my plan is to close one of them as soon as I have a chance. The best candidate is the SPY 137/135 spread which is the least safe position. If the markets make a little push up and this position gets to a profitable balance including commissions I won't hesitate to close it. That SPY spread was entered for a credit of 0.26 and I'm willing to close it for a debit of 0.15 or better.

If the market doesn't move up but stays sideways I will simply sit idle getting time decay in my favor.

If we keep going down, I will adjust my SPY 137/135 if/when we hit 137.20. The RUT 750/745 spread won't be touched this week.

Market conditions right now

SPX's uptrend channel definitely broken. 50 day Simple moving average penetrated.

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Stochastics oversold, but McClellan showing that there is a little more room for the downside. 32% of stocks above their 20 day simple moving average, which is close to oversold but still leaving downside room.

The CBOE Index Put/Call ratio is showing a reading this week of 1.32 and the Equity Put/Call ratio is at 0.77. Those are elevated numbers showing there is plenty of pessimism but curiously slightly lower than last week before the sell off.

There is a potentially new downtrend channel forming that if confirmed, points to a low of 1385 by November expiration. I'm still slightly bearish but I believe a little push back up is close, probably during the upcoming week.

Releases this week:

Monday - Personal income and Personal spending.
Tuesday - Consumer confidence
Wednesday - European unemployment. Chicago PMI
Thursday - ADP Employment survey, Initial claims, ISM Manufacturing.
Friday - Non-farm payrolls

Good luck folks!

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