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Saturday, April 27, 2013

Weekend Portfolio Analysis (04-27-2013)

SPX went from 1555.25 to 1582.24 this week for a very decent +1.74% and boy oh boy, the market proves once again how much it loves to go against what the majority thinks.

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Stochastics: 83 (overbought)
McClellan: +58 (neutral)
57.55% of stocks are above their 20 SMA (neutral)
53.51% of stocks are above their 50 SMA (neutral)

To me this is no man's land with decent room to move either way. I would avoid selling aggressive credit spreads at this point (by aggressive I mean close to at the money, let's say plus/minus 2%)

Because we are challenging all time highs the upside moves, should they happen, will probably be slow, versus higher speed for potential down moves.

I personally think surprises favor the downside, but again, my personal bias is irrelevant, and I'm not good at all predicting direction when we are in no man's land. I'm slightly better when we are at extreme points.

May Positions

RUT 1000/1005 Bear Call Spread
After closing the RUT 850/855 Bull Put spread this week, the original RUT 850/855/1000/1005 Iron Condor only has the call side in play. It's looking good by now and I won't touch it this week.

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93% probability of success in 20 days.

SPX 1440/1445 Bull Put Spread
Also looking very healthy at this point. I won't touch it this week either.

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99% probability of success in 20 days.

June Positions

SPX 1430/1435/1660/1665 Iron Condor
This trade was entered yesterday, so there's nothing new to say here. With wide wings, I won't need to touch it this week.

Action Plan for the week

All the positions are looking good now, and with such a low VIX (13.61) it is time to take a break here and let time decay do its thing. Opening new positions in other indexes right now would just add risk in the same approximate points. So, I will wait until the market moves a little bit to deploy new RUT positions in June. That probably won't happen this week. For me to sell RUT Calls, I would like the market to go up by +2% this week. I thinks that's unlikely. And in order to deploy Put Credit spreads I would like us to go to oversold conditions that certainly look far and won't be available this week, unless something drastic happens and we get to see a -4% correction in just 5 days.

So, chances are, nothing will be done this week. Existing positions look safe enough and conditions to deploy new ones are not optimal.

Economic Calendar

This week is going to be pretty active and releases may have some immediate impact on the markets, specially from Wednesday to Friday.

Monday - German CPI, US Personal spending, US Pending Home sales, Chinese PMI
Tuesday - German Unemployment
Wednesday - ADP NonFarm Employment change, ISM Manufacturing Index
Thursday - US Initial Jobless claims. Italian / French / German PMI
Friday - Nonfarm payrolls, Initial Jobless claims

Good luck this week folks!

Check out Track Record for 2013

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  1. We also get the ECB's decision to cut interest rates on Thursday. The market has mostly priced in a cut due to leaks and hints. The majority of investors overwhelming believe the cut is a fait accompli. So if they decide not to do it, look out below.

    Last Thursday was a good day to sell a call credit spread because we got a little overbought. I am weary about selling June though because it is 2 months away. A lot can happen in 2 months. While I think the upside is limited (I have been saying this all year), anything can happen. I rather give my call spreads less time than more time. I almost always prefer to sell my monthly put spreads 30-60 days out but keep the call spreads under 45 and preferably under 30. I believe the uptrend tends to be much longer than the downtrend.

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  3. Thanks Jonathan.
    Good points.
    I think uptrends last longer in general, although I dont have the data to back it up, but looking at past 5 year charts it seems pretty clear that down moves are violent and quick whereas uptrends are slower but more sustained.

    Thanks for the comment about the Fed's rate decision. Normally I dont pay attention to it, because although it is an important piece of information, the majority of cases it always remains unchanged and really not much happens. But you're right this time there could be implications.