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Saturday, May 4, 2013

Weekend Portfolio Analysis (05-04-2013)

SPX moved from 1582.34 to a close of 1614.42 on Friday for a solid +2.03% this week. And nobody, nobody can tell me they can predict anything related to where the market is headed. Folks, we've been in this unstoppable uptrend for almost 6 months now! The more I watch this thing, the more convinced I become that predicting short term direction is a futile exercise.

I've redrawn the uptrend channel, disregarding the previous swing low. And the reason I drew it again, is because, well, we are still in this solid uptrend that only God knows when it will end.

(Click on image to enlarge)
The yellow horizontal lines are the short strikes of positions that I have in May and June expiration cycles. That's where I don't want the market to go.

Stochastics 85 (overbought)
McClellan +139 (neutral)
71.94% of stocks above their 20SMA (overbought)
63.61% of stocks above their 50SMA (neutral)

We're from neutral to overbought territory. Still some upside room, but the market quickly becoming too overbought. For this reason I believe another +2% week is unlikely. If SPX hits 1630 this week, it will be a good opportunity to deploy out of the money Credit Call Spreads.

May Positions

RUT 1000/1005 Bear Call Spread
The short 1000 strike price is still 6% above RUT current level. The spread's looking good by now and I won't touch it this week.

(Click on image to enlarge)

91.16% probability of success in the next 13 days.
(Click on image to enlarge)

SPX 1440/1445 Bull Put Spread
Very healthy at this point. Will be left to expire for full profit and no closing commissions. I'm not going to put a chart for this one, because the chart of SPX was already shown above and for this particular position TOS is showing 100% probability of success. Of course that's an approximation, nothing here is 100%. But anyways, with a short strike price of 1445, and the market at 1614 SPX would need to fall 170 points in 13 days. That's more than a 10% fall. I believe this position is very safe by now.

June Positions

SPX 1430/1435/1660/1665 Iron Condor
The short call strike (1660) is not a concern yet, inspite of the fact that the market is challenging new highs all the time.

(Click on image to enlarge)
 A slight temporary loss, but nothing out of hand yet. 72.10% probability of success.

Action Plan for the week

May positions won't need to be touched this week. Or at least that looks very unlikely right now. The SPX June Iron Condor is also looking fine. It may need an adjustment but probably not this week. If SPX goes up to something like 1640, I will probably roll the whole position up, that is taking profits on the Put side, and a temporary loss in the Call side, and then getting new Credit for redeploying the Iron Condor.

Other than that, with RUT hitting 960 - 965, it is probably a good idea to sell June 1020 - 1025 Calls in June.

As for selling Puts, not at this point for me. I need a pullback for that. A meaningful one, at least 3%.

Economic Calendar

It's going to be a very light week in term of news and also with earnings season winding down.

Wednesday - Chinese CPI and PPI
Thursday - Initial Jobless claims, Continuing Jobless claims

Good luck this week folks!

Check out Track Record for 2013

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  1. I agreed with your analysis that another 2%+ week is unlikely given how overbought we are at the moment. You are correct in saying that 1630 would be a good time to sell a June bear call spread. I also thought it was a good idea to see a May bear call spread when SPX was at 1590. I also agreed with you that it will take a 3% down day for me to be interested in selling a bull put spread. It seems this whole year, the correction has been very mild. I think these mild corrections will be more violent once the Fed punch bowl is taken away.

    I learned some important lessons this week. The first lesson is not to trade before the jobs report. I got bearish and was proven wrong. I will now refrain from trading when the Fed has an announcement or the week of jobs report. Stocks tend to swing up or down hard after these announcements.

    The second lesson is to close a winning spread and not let it expire worthless UNLESS it is very far away. I had 2 winning bear call spreads prior to the NFP announcement. But I thought I would let it expired on Friday for full profit. Friday's rally caught me off guard and I had to roll those further out.

    Third, I need to be more careful with bear call spreads. Bear call spreads give most traders the most trouble because markets tend to go up much more than go down. We always underestimate the extend and the magnitude of the rally. I would have done much better this year if I had never sold bear call spreads or only sold them when we were really overbought.

    So my game plan this week is to manage my weekly spreads. I am hoping that we drift down a little bit this week. It will give my bear call spreads some much needed relief.

  2. Pretty valuable comments Jonathan. Thanks for sharing. I believe the most valuable one to me is the "closing trades when most profit is achieved and dont wait till expiration" In fact I would recommend everyone to do that, if they have a decent commissions schema and not the abusive ones Canadians "enjoy"

    As for playing short term plays in front of news, That was one I learned early in the game. I believe credit spreads (due to the adverse risk/reward) should be played as far from price as possible. And doing so,means a very small reward if you use weeklies due to the small time value. Again, some people out there apparently manage them well. But, I know myself. It is not my game