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Saturday, August 31, 2013

Weekend Portfolio Analysis (August 31, 2013)

SPX went from 1664.29 to 1632.97 this week, for a 1.88% decline. The model portfolio remains the same as I didn't do anything, although I felt tempted to enter a RUT Bull Put spread with October options. But, there is too much exposure already in the portfolio and I want to play it safe.

Let's see how the market's looking now
(Click on image to enlarge)
The four horizontal yellow lines on the chart represent the short strikes of the Iron Condors I have in SPX, one with September options and the other one with October options.

Stochastics: 18 (Oversold)
McClellan: -74 (Neutral)
24.18% of stocks are above their 20 SMA (Oversold)
38.80% of stocks are above their 50 SMA (Neutral but close to oversold)

Certainly close to very oversold conditions. I didn't sell out of the money puts, because there are 2 Iron Condors already in the model portfolio and one Bull Put spread, but otherwise I would do it. I think it is a good opportunity to sell out of the money Put spreads. For example the October 885/890 RUT put spread is priced at 0.45 right now. I don't think RUT will go down there, it is almost a 12% decline from current levels and over 16% decline from the 1063 peak.

There's a lot going on right now, but as you know I never analyze fundamentals or try to predict market direction based on them. It is funny to see so many websites everyday trying to predict where the market will go next. And whether the Fed will taper or not and its implications, or whether the US will attack Syria or not. To me it is funny because folks, even if you knew the answer to those questions, you would never, never know how the market would react to them. How many times have we seen the market rally on bad news and decline on good ones? What is good or bad for the market? Nobody, NOBODY knows anything. Probably the reason why over time I have stopped reading news and forecasts about the markets. It is all useless noise. Seriously, I'm at a point where I don't read anything at all, except the economic calendar just to have an idea about which days could be more volatile during the week. But my old days, hungry for market forecasts reading Bloomberg, MarketWatch etc, wasting so many hours of my life are long gone. And life is so much simpler and easier now. Ok enough with the rant. Let's move on to the analysis of the current positions.

September Positions
September SPX Iron Condor(1560/1565/1760/1765)
Still looking good with an 81% probability of success in the next 20 days.
(Click on image to enlarge)

RUT 935/940 Bull Put spread
Looking more comfortable than the Iron Condor with a nice 91% probability of success.
(Click on image to enlarge)

October Positions
SPX 1525/1530/1750/1755 Iron Condor although only a 71% probability of success, I am not too concerned. The probability of success has decreased because the VIX has gone up since I entered this positions but apart from that, the current price of SPX is around the middle of the Iron Condor, so no reason to be alarmed.
(Click on image to enlarge)

Action plan for the week
All 3 positions look good. The one that concerns me just a little is the September SPX Iron Condor(1560/1565/1760/1765) but I think it is unlikely for SPX to go down to 1565 in the next 20 days considering the oversold conditions we are approaching already. But if the 1565 strike price gets to a 30% probability of being in the money by expiration (currently 18.53%) I will close the 1560/1565 Put spread and I will sell another one further down, along with a Bear Call spread at the same time, probably SPX 1680/1685, or 1675/1680. Note I won't close the 1760/1765, there is no risk there in my humble opinion.
Other than that, if RUT falls, let's say another 1% and breaks the 1000 level, It would just be too tempting and at that point I will probably sell 4 bull put spreads using October options and strikes around 880 - 870.

Economic Calendar

Monday - Chinese Manufacturing PMI. US Markets closed for Labor day.
Wednesday - ISM Manufacturing Index
Thursday - ADP Non Farm, Initial and Continuing jobless claims.
Friday - NonFarm Payrolls, Unemployment Rate

Good luck this week folks!

Check out 2013 Track Record

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  1. I like your style of trying not to predict what the market is gonna do. I know of too many traders who waste endless hours trying to play this game. They all sound intelligent and well-thought out but the markets do not behave so consistently. An oversold condition can stay oversold for a while. Same for overbought. September will prove to be very interesting indeed.

  2. Thanks for the comment Jonathan. Yes, I agree extreme conditions can remain for a while. I think that's why playing with cushion and room for error makes me feel comfortable. Good luck with your trading!

  3. Good morning LT,

    When you have the time would you comment on OEX and DJX? I do not see you use these two vehicles?

  4. Thanks for the comment LEN.
    OEX and DJX. No, I really never look at those. But all these symbols are highly correlated, SPX, RUT, NDX, DJX, OEX. If I analyzed OEX or DJX the style of the analysis would be similar, that is, I just like to detect extremely oversold/overbought conditions and play with out of the money options.

    I think just with a couple of them, a good yearly return can be achieved if traded properly, and I've decided to focus on 2 of the most followed ones (RUT and SPX)