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Saturday, November 17, 2012

Portfolio Performance Analysis

With the arrival of options expiration yesterday, I finished the trading activity for 2012. The last position of the November expiration cycle, the  RUT 750/740 Bull Put spread expired worthless on Friday morning for full profit of $255. With this result, both trades on the November expiration cycle were profitable. The SPY 137/135 yielding $180 and the RUT 750/740 yielding $255, for a total of $435. On an initial balance of $13311 this month in the portfolio, it represents a performance of +3.27% before considering commissions.

I started to publish all my trades 13 months ago. I didn't trade the May 2012 cycle as I was off to Cuba. So, in total, I traded 12 months. The results were good, in fact above my expectations:

33 trades in total, 28 winners, 5 losers.
Trading balance +$5372, which represents +53.72% for a $10000 portfolio before commissions.
Final Portfolio balance $13647, representing a +36.47% performance after commissions.

Equity curve growth

% Trades won: 85%
% Trades lost: 15%
Avg winner ($): $282.64
Avg winner (%): 12.03% (of margin invested)
Avg loser ($): $504.40
Avg loser (%): 21.32% (of margin invested)

Profit factor: 3.13
Worst draw down: -7.80%

For more detailed information about the whole track record trade by trade, linking each trade to its articles click here

Some general comments about the markets

The S&P500 had another loss this week, this time -1.45%. On Thursday after the close, we had by far the most oversold market that we have seen this year. McCLellan close to -300, only 14% of stocks above their 20 SMA. The kind of really/extremely oversold market that happens only once a year.

If I were to trade the December expiration cycle I would have sold Puts at that point, and like I said a week or so ago, selling the SPY 130/128 seems like a very nice and comfortable trade. The funny thing is that, no matter how many times it happens, when people see red everywhere it is inevitable for them to be afraid of entering bullish positions. Many traders will say, "Oh if the market pullbacks, this or that point will be great to enter long trades at better prices" yet, how many of them have the guts to really do it when the pullback happens and their supposedly excellent entry point is reached?

There is a popular quote by Warren Buffet, you've probably read somewhere "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." And through the whole year, I have realized how much value is contained in that sentence. All the trades I entered this year, all 33 of them were entered in moments when the vast majority of traders wouldn't have done it, or would have called me crazy. Selling Calls after a strong bullish trend has developed or selling Puts when a strong downtrend is going on. And in fact, in most of them I was also scared myself, until I got used to the odds of my system, the history, the statistics, the evidence. It is true that the markets can remain oversold or overbought longer than you can remain wealthy, but most of the time it doesn't, it takes a breath, or at least it gets a dead cat bounce. And in the one time it doesn't, then you will lose, but if you are consistently trading all the opportunities and managing your losses, odds are in your favor to be long term profitable.

The market is looking very oversold now. And although I recognize that the Fiscal cliff is a very serious issue, I believe that short term, we can't go much lower than this. SPX 1320 at most if it keeps falling, but chances are pointing to a bounce.

This week will be very light in terms of news, and it will mostly be focused on the Fiscal Cliff talks. Stay tuned because anything positive will cause a rally. At this point I would be very wary trying to short this ultra oversold market.

Good luck this week folks!

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  1. You we're spot on calling the November 16 bottom man! Excellent Analysis. And your SPY 130/128 Spread trade was a great idea.
    Thanks for sharing your valuable thoughts!

  2. Thanks for your words! They keep me motivated :)