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Sunday, August 4, 2013

Weekend Portfolio Analysis (August 4, 2013)

Folks, what a market! It's all I can say. Beating the markets this year is going to be really really hard even for the "only long equity" funds. For sure I know I won't beat it with only less than 5 months and still dragging a negative performance this year (Although with a nice improvement after February). Tough lesson: selling premium is one of the hardest jobs when the market is in full bullish mode and the VIX remains below fifteen for most of the year.

Two weeks ago I said in my weekend analysis that the market was too overbought and needed a rest in the upcoming week. That's exactly what happened in that week between July 22 to July 26. And the market absorbed its overbought condition via time rather that a price correction. That week was ideal for me to close the RUT 1080/1085 Bear Call spread for a profit of at least +$100. And my plan has been to close it for scratch or small profit for a while but I didn't act. Old greed betrayed me.

There was no weekend analysis article last week, and well, we all saw the breakout that took place this week. Let's see how things are looking now.
(Click on image to enlarge)
Stochastics 79
McClellan -12
64.35% of stocks above their 20SMA
74.64% of stocks above their 50SMA

Close to overbought but there is definitely upside room. The number of stocks above their 20SMA is not extreme and a breadth indicator such as McClellan is showing plenty of room in the short term.

August Positions
August RUT Bear Call Spread (1080/1085)
With RUT around 1060 this position is in danger. Probability of success 72%.
(Click on image to enlarge)

August SPX Iron Condor(1560/1565/1745/1750)
With SPX at 1709 I'm not concerned with this position now. SPX 1745 still feels comfortable given that August expiration is now only 11 days away.
Probability of success around 80%
(Click on image to enlarge)

Plan for the week

Obviously getting rid of the RUT Credit Call Spread as soon as possible. If the market doesn't retreat then this spread will eventually need and adjustment further up for which I will probably use September options. But if time decay and a little sideways action offer some chance I will close it for a small profit.

Other than that I will probably enter the first September play. If the market gets into very overbought territory like two weeks ago, I will sell Calls. Yes, it has been like a dirty word this year (selling calls) but again I would only do it in a very overbought scenario. Maybe selling the SPX 1785 or 1790 Calls which, if they result in a losing proposition then I would adjust further up over1800. I will stay relatively small, only 3 or 4 contracts per leg. I prefer that over entering an Iron Condor at this point with such low volatility. You are not being properly rewarded for the risk you're taking.

Economic Calendar
Monday -ISM Non Manufacturing Index
Thursday -Jobless claims, Chinese CPI and PPI
Friday - Chinese Industrial Production

Good luck this week folks!

Check out 2013 track record

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  1. Selling bear call spreads have not been as successful this year as previous years. I know a fellow who only sells bull put spreads since 2011 and he has never had a losing trade. Makes you wonder why we even bother with bear call spreads since they have so many disadvantages compare to bull put spreads.

  2. Hey Jonathan,
    Thanks for stopping by.Yes, I think there are definitely disadvantages to Call spreads, specially the difficulty in adjusting them and getting far enough from the action (as when the market rallies vol contracts) Now, switching to an only Bull Puts diets, I dont know I would first do some backtesting of previous years. It's true that your adjustments could be made further out, but also the market tends to fall really hard to the downside. Good point though and worth some thought.