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Sunday, October 21, 2012

Weekend Portfolio Analysis (10-21-2012)

Options expiration was on Friday and along with it the October cycle in the portfolio was closed with the RUT 910/915 Bear Call spread expiring for full profit of 16.28% return on margin. The October expiration cycle closed with only two trades, a $454 return before commissions, $334 after commissions which represents +2.57% growth on a total portfolio of $12977. You can check out all the details here. Overall, 11 months of trading activity have yielded 26 winners, 5 losers and a +33.11% performance after commissions.


The markets started the week with a nice rebound off of Friday's loss. Rebounding nicely on the lower end of the Up trend channel that started 4 months ago. However, we all saw an elephant red bar on Friday due to below expectations earnings mainly on the Tech sector. The S&P500 started the week at 1428.75 and closed at 1433.19 for a 0.31% growth.

Moving on to the November expiration cycle. Only one position has been traded and it looks like it will be the only one as we are already 26 days away from expiration. The position is an SPY 137/135 Bull Put spread which is looking like below:

(Click on image to enlarge)

Probability of success 80.34% and unrealized profit of $75. That's a slight improvement over the 79.57% last weekend and $0 unrealized profit. This position had been entered when SPY was at 143.28. Back then Stochastics were oversold and McClellan at -151. Right now SPY is at 143.39, almost the same price, however, Stochastics at 66 and McClellan at -64 are far from oversold. So, there is a chance I will have to endure some pain on this position moving forward.


Plan for the week

Again I would like to sell a Credit Call Spread on SPY this week. But I need an overbought market for that. We are far from it.

If SPY drops to 137.20 I will adjust the existing position lower down.

I would like to sell a RUT Bull Put spread. If the 750/740 Bull Put spread gets to be priced at 1.20, it will be a very attractive candidate. Beta weighting vs SPY, the breakeven point of that position would be equivalent to SPY 132. The 1.20 price for the spread is within reach if RUT drop 20 points early in the week.

If none of those things happen, I will simply sit idle.


Market conditions right now

In my opinion the SPX's uptrend channel that started 4 months ago was broken this Friday. That candle also started to penetrate the 50 day Simple Moving Average support area.

(Click on image to enlarge)

Oscillators are pointing down and with that Friday candle it is hard to not think about more follow through to the downside. A relatively large candle with small wicks also taking into account we are not in oversold territory. So, I'm bearish short term. However, the CBOE Index Put/Call ratio is showing a reading this week of 1.33 and the Equity Put/Call ratio is at 0.80, also elevated. This means there is a lot of pessimism already in markets participants and traders are protected. So, although I'm bearish, I believe that if there is more downside, it will be contained and we won't see panic selling. Look forward to support levels at 1425-1430 and lower down around the 1400-1410 area. I believe my SPY 137/135 spread is still safe.

If markets go up, then aleluya! my SPY spread will be safer.


Possible high impact news this week:

Monday and Tuesday very light.

Wednesday - FOMC meeting
Thursday - Durable Goods
Friday - GDP

Good luck folks!



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