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Sunday, April 21, 2013

Weekend Portfolio Analysis (04-21-2013)

April expiration is now in the past and it resulted in a decent month for the model portfolio (+4.09% before commissions). The two remaining positions (SPX 1445/1450/1610/1615 Iron Condor and the SPX 1440/1445 Bull Put spread expired worthless for full profit on Friday morning and the focus now shifts to May expiration.


SPX opened the week at 1588.84 and closed at 1555.25 for a -2.11% loss. We got to see decent moves during the first three days of the week and the SPX index left the uptrend channel that started back in November 16 last year.

(Click on image to enlarge)
The question now is, will this be the start of a sweet downtrend? or the start of a few months of sideways action in the market? Obviously nobody knows, but what we do know is that these swings, a higher VIX and the death of a medium term uptrend are like music to the ears of Options sellers. So, hopefully Credit Spread sellers will have it a little bit easier for a few months.

Stochastics at 18 (oversold)
McClellan at -44 (neutral)
34.02% of stocks currently above their 20 Simple day moving average (neutral but close to oversold)
42.56% of stocks currently above their 20 Simple day moving average

No man's land, but close to oversold conditions.
On the way down, the 1530 area should provide some support and then the 1490 - 1500 zone could also be strong there. Everybody seems to be thinking that we will go a little further down, but the market has a funny tendency to go against what most people think. I personally believe we'll go a little further up first and then down below 1530. Obviously, what I think or what anybody else thinks is irrelevant and that's why I like to play Out of the Money Credit Spreads to have some decent room for error.


May Positions

RUT 850/855/1000/1005 Iron Condor
(Click on image to enlarge)
Looking good here, with roughly an 80% chance of successful expiration in 26 days. I believe the short Call Strike at 1000 will be safe, it would need a +10% rally of RUT in 26 days, which I think is very unlikely. The short Put strike at 855 however, could be tested with ease in my opinion. It's only 5% away.

SPX 1440/1445 Bull Put Spread
The trade was entered this past Thursday, and so far it's not looking like a bad idea.
(Click on image to enlarge)
With a 95% probability of success, this is the Credit Put Spread I would like to take all the way to expiration in May.


Action Plan for the week

There are two Bull Put spreads and only one Bear Call Spread in the May portfolio. That's twice the risk to the downside. Obviously, I dislike that, so at this point my main goal is to get rid of one of the Bull Put spreads. The RUT 855/850 is only 5% bellow current RUT's price. The SPX 1445/1440 is 6% below current SPX's price. On top of that RUT generally moves faster than SPX ( on a percentage basis). So, the RUT 855/850 spread has a higher chance of being tested and therefore that's the one I would like to close as soon as I can. I'm not desperate though, there is still room, and I will wait until that spread shows some gains, hopefully with a little bounce back up this week I will be able to close it for a scratch or positive balance.

As for June positions, I'll start looking to adding the first one by Friday this week. If by then the market is not at a Bearish or Bullish extreme, I will enter a wide SPX Iron Condor. if we happen to be at a market extreme, I will opt for an out of the money spread against the trend.


Economic Calendar

Plenty of releases this week, plus a busy week of earnings.

Monday - Existing Home Sales
Tuesday - New Home Sales and German PMI
Wednesday - Durable Good Orders
Thursday - Initial Jobless claims
Friday - US GDP

Good luck this week folks!


Check out Track record for 2013



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2 comments:

  1. Hendrick,

    I love reading your weekend analysis of the market, your current positions and your plan for next week. Some questions:

    1. Are you using real money or are these still demo trades?

    2. Why not sell a SPX May bear call spread to iron condor with your bull put spread later this week if SPX goes up to 1570? You will not need additional margin. While the credit will be much less since this is less than 30 days to expiration, you can get a better return for the whole position.

    3. Your RUT 850/855 seems pretty 'safe' right now. If I had that position, I would look to take it all the way to expiration. But that is just me.

    4. One other thing you can consider doing is to close your positions early when you have 80% or more of the maximum profit. It is not worth it to try to collect a few more pennies.

    Keep up the great work.

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    Replies
    1. Hey Jonathan,

      Good questions.
      1 - I started applying my own trade ideas after the third or fourth month of demo - trading last year. I don't remember exactly when. But I have kept the idea of a model portfolio of $10000 first to hopefully help folks out there with smaller accounts and show it is possible, second to have it easier while doing the maths.

      2 - Your suggestion is valid. It's only a personal choice. I prefer to start decreasing the number of open positions or not start new ones when we are 3 weeks to expiration. A more aggressive trader could follow your idea. So, while I'll be closing one Bull Put spread and only leaving open another Bull Put spread and a bear call spread, in your case you would have two Iron Condors. That's fine, obviously aiming or higher returns at a higher risk. It comes down to your risk tolerance really.

      3- RUT. Yes, it looks good now. But It's only the fact that I like to have a balance risk to both sides of the markets. Right now there are two positions to get hurt on the downside vs only one to the upside. RUT's spread in particular, at 5% below current price, that could be achieved with a bad week for SPX, let's say a -3% SPX and this position could be feeling the pressure. Again not that big of a problem as if that happens, Options premiums will be inflated allowing a nice adjustment. It's really the first part of the argument: unbalanced exposure to one side of the markets, and one of the positions at a distance that according to my judgment is not so far.

      4- I have absolutely thought of that. Closing at a certain profit to avoid exposure. The reason I try to take positions to exp. is the fact that Canadian traders don't have it easy when it comes to commissions costs (that's also the reason why I assume a $1.50 per contract schema) US folks definitely are at a huge advantage in this respect and I definitely encourage closing in advance if you enjoy a good commissions scheme.

      Thanks for your words, they keep me motivated.
      Cheers!

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