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Saturday, November 30, 2013

Weekend Portfolio Analysis (November 30, 2013)

We had a pretty slow week as anticipated with Thanks Giving in the middle. SPX went from 1806.33 down to 1805.81. Almost unchanged which is great for options sellers as time decay does its work and positions are not threatened. We are now exactly 20 days away from December expiration and things are not looking bad at all in the model portfolio. But before that, let's take a look at the market internals.

Market conditions
(Click on image to enlarge)

Stochastics: 85  (overbought)
McClellan: +40 (neutral)
69.98% of stocks above their 20 SMA (almost overbought)
68.12% of stocks above their 50 SMA (close to overbought)

Although the indicators suggest that there's still a little upside room, it is starting to look limited. With a little +1% push higher this week we will be at a market extreme, and I will take advantage of that by selling out of the money Credit Call spreads using RUT January options with a 90% probability of success.

December positions
SPX 1675/1680/1850/1855 Iron Condor. With SPX at 1805, this position is showing a 75% probability of success, 20 days to expiration. No concern at this point, although I'll have to be taking a look at the markets from time to time in case the short 1850 Call option starts to feel the heat. That probably won't happen until we see SPX 1830-1835.

SPX 1600/1605 Bull Put Spread. Nothing to be concerned about here. This fight has been won.

January positions
SPX 1645/1650/1880/1885 Iron Condor 75% probability of success. 48 days to expiration. All the strikes are safely away from current price action. This position will not be threatened this week. Or it's very unlikely for that to happen.

Action plan for the week
If the market moves up and becomes extremely overbought, I will sell out of the money Credit Call spreads with RUT January options. I believe those conditions will be present with a +1% push higher this week. The candidates to sell will be in the 1220 - 1225 area, which beta-weighted against the SPX index is the equivalent to 1910 SPX index points. Not bad, I like my odds up there and even though those values can be eventually reached by the market, I believe it is unlikely without a pull back first. Additionally, If with this hypothetical push higher, the 1850 Call of the December Iron Condor reaches a 30% probability of being in the money, I will see myself forced to adjust it further up and swallow a small loss there.

If the markets were to remain sideways like this past week, or if they decline then the neutral conditions would strengthen and I wouldn't do anything.

Economic Calendar
As usual for the first week of the month, this will be a pretty active one with plenty of releases to move the markets. I expect volumes to increase and chances for more significant moves are greater.
Sunday: Chinese Manufacturing PMI
Monday: German Manufacturing PMI, US ISM Manufacturing PMI
Wednesday: US New Home sales, ADP NonFarm Employment change, ISM Non-Manufacturing PMI
Thursday: US GDP and Consumer spending
Friday: NonFarm Payrolls, Unemployment Rate

Good luck this week folks!

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  1. Great update and insight of the option market. Thanks sir Option quyen chon

  2. Thank you so much LT!

    I'm sure there's a post in on the rationale to choose these 4 indicators (Stochastics, McClellan, Above 20D and 50D MA). Can you tell me which date of such post? And the thresholds for over bought and over sold for these indicators? Thank you!

  3. Hey buddy,

    Here are my oversold/overbought thresholds:

    Stochastics: 20/80
    McClellan: -150/+150
    Number of stocks above x moving average: 30% / 70%