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BookingAlpha Option Trading Advisory

Thursday, November 14, 2013

December $SPX positions adjustments

Today was an active day for the Lazy Trader, you can see all my tweets today (November 14), whose screenshots I won't reflect here as they would take up to much space.

There was only one position in the portfolio for the December expiration cycle at the start of the day: SPX 1600/1605/1835/1840 Iron Condor. I decided to close the Call side (1835/1840) as I am seeing a very strong market that according to the parameters I follow IS NOT OVERBOUGHT. Meaning it has plenty of room to move up.

So, although I usually wait for the short Call option to have around a 30% probability of being in the money, in this case I made an exception and closed it earlier than usual.

Just for perspective and as an interesting note, on Tuesday, November 12, the McClellan oscillator was showing values below -150 (oversold) and at the same time the number of stocks that were trading above the 20 Simple Day moving average was just around 40% (approaching oversold territory). What is really unbelievable, and I hadn't seen this occurrence before, was that the oversold readings in those indicators were taking place in the middle of a market that hadn't corrected at all. For those two readings in those indicators I would expect more significant corrections of at least 3%. The downside room was suddenly becoming small. I tried to exit my SPX 1835/1840 Call side of the Iron Condor for a small profit but never got the fill.

The market started to break out yesterday with some continuation today, and what matters more to me is that it is far from overbought: McClellan pretty neutral at -1 and only 53% of stocks are above their 20 SMA in the NYSE. That leaves plenty of upside room and that's the reason why I closed the Bear Call spread this early. Had the market been overbought I wouldn't have closed it until it reached the usual 30% probability of being in the money, roughly 30 deltas.

Bought to close 4 SPX December 1835 Call @5.10
Sold to close 4 SPX December 1840 Call @4.20
Net Debit 0.90

This spread had initially yielded a 0.60 credit. Closing it for 0.90 debit represents a 0.30 loss or $120 in 4 contracts per leg.

Right after that I entered two new spreads to make up for the small loss and a little bit more:

Sold to open 5 SPX December 1850 Call @2.80
Bought to open 5 SPX December 1855 Call @2.25
Net Credit: 0.55 ($275 on 5 contracts per leg)

and finally:
Sold to open 5 SPX December 1680 Put @4.30
Bought to open 5 SPX December 1675 Put @4.00
Net Credit: 0.30 ($150 on 5 contracts per leg)

So, in the end there was an initial loss of $120 and then a new 1675/1680/1850/1855 Iron Condor to make up for it that is worth a credit of $425 (5 contracts per leg). I believe this new position is much safer for a market that believe it or not, DOES NOT look overbought (at least according to the parameters I usually follow).

The 1600/1605 Bull Put spread is still in play. That one is pretty safe and it is worth a credit of $80. In total, there are 3 positions in SPX right now and a total credit of $505. The positions are:
December 1600/1605 Bull Put Spread ($80 credit)
December 1675/1680 Bull Put Spread ($150 credit)
December 1850/1855 Bear Call Spread ($275 credit)

I think there is a good chance to finish December expiration in positive territory.

As for November, tomorrow is  expiration day, and all 3 existing November positions will expire for full profit. It will be a peaceful expiration day for me:
SPX 1565/1570 Bull Put Spread -> $160 credit
SPX 1520/1525 Bull Put Spread -> $160 credit
RUT 1160/1165 Bear Call Spread ->$160 credit.

With that result, the performance for November will be +4.98% before commissions and +4.41% after commissions. The performance of the whole portfolio for the year will be +8.97% after commissions. My goal is to close the year with +10% or better. Worse than the overall market, but a very nice recovery from the -14.22% the portfolio found itself on February 15.

Finally a chart of the SPX after market close today for future reference.
(Click on image to enlarge)

Check out Track Record for 2013

Related Articles:
Weekend Portfolio Analysis (November 23, 2013)
Weekend Portfolio Analysis (November 30, 2013) 
Weekend Portfolio Analysis (December 7, 2013)

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1 comment:

  1. very informative article here this will help me lot while trading .thanks for this.