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Saturday, February 9, 2013

Weekend Portolio Analysis (02-09-2013)

SPX went from 1513.17 to 1517.93 this week for a small 0.32% gain. The market hasn't given the sell off that many have been waiting for so long and I truly believe we are not overbought anymore. As an options seller, my goal each weekend is not to predict exact short term market direction but to determine whether the market is very overbought, very oversold or in no man's land. That's it. Based on that I will trade or not and will give room for error in my strike prices, always out of the money.

Trying to time the market perfectly, or determining what the next move will be is a very complex task which by the way nobody is able to predict with 100% accuracy.

Here's the chart of the S&P500 Index as of Friday close.

(Click on image to enlarge)
The uptrend hasn't been broken.
There's room to move from here to the upper end of the channel.

Stochastics at 85 are overbought
McClellan at 10 showing lots of room for an upside move and very far from overbought
65.84% of stocks are above their 20 SMA
79.33% of stocks are above their 50 SMA

Clearly, believe it or not, at least by the parameters I use, we are less overbought than we were last week.

It could also be argued that there is a bearish divergence between price action and the oscillators. So, we're having mixed signals and as I think we are not extremely overbought anymore, my verdict is that we are in no man's land. In these circumstances I assume we can go either way with similar probabilities. Although, obviously the upside seems more limited than the downside. But the idea is to not get aggressive selling credit spreads near current prices, as this thing has room to go in either direction. Just my humble opinion.

Current positions

This week is February expiration and I have two positions that will hopefully expire worthless on Friday:

RUT 845/850/935/940 Iron Condor ($420 credit)

(Click on image to enlarge)
Temporary profit of +$130. Probability of success 86.06%. I feel comfortable here. The plan is to let it expire worthless in 6 days.

SPX 1445/1450/1530/1535 ($600 credit)

(Click on image to enlarge)
Temporary profit of +$225 and probability of success 68.52%. The 1530 strike price could be threatened this week (we're less than 1% away from it). If that happens, I will roll up and out to March. If not, I will try to let it expire worthless.

There are two additional positions but these are in March:
RUT 825/830/955/960 ($350 credit), looking good and not touching it this week.
SPX 1355/1360/1560/1565 ($375 credit), also looking good and not touching it this week.

So, I'll mainly focus on managing my two February positions this week. The best scenario is if they expire worthless. I have a total of $1745 in credit for these four positions. Hopefully I can stop the bleeding with them for a profitable 2013.

On the Forex front

The LT Trend Sniper system finally closed the second trade of the year. This time for a small -1.08% loss. After being over 200 pips in profit, a huge EURUSD reversal made it exit the trade for a limited loss. That's the price you pay for trying to let your winners run. But it is a necessary price to pay in exchange for eventually catching a monster trend. There should be 3 to 5 trades left this year. If one of them catches a solid trend, chances are good for a profitable result by year end.

Economic Calendar

Light week in terms of events. Retail Sales on Wednesday, and on Friday Industrial Production. February Options Expiration.

Good luck folks!

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