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Saturday, December 14, 2013

Weekend Portfolio Analysis (December 14, 2013)

SPX fell -1.71% this week from 1806.21 down to 1775.32. A RUT 990/995 Bull Put spread position was entered when all the short term indicators were signaling oversold conditions, and things are currently looking pretty good in the portfolio.

Market conditions
(Click on image to enlarge)
Stochastics: 8 (oversold)
McClellan: -119 (neutral)
35.99% of stocks above their 20 day Simple Moving Average (neutral)
49.68% of stocks above their 50 day Simple Moving Average (neutral)

We're pretty much in no man's land here. But we're closer to oversold than to overbought conditions. Based on that I believe the short term downside room (this week) is limited to no more than 1%. As always, I am no guru, and suck at predicting next moves. My goal is to just be approximately accurate predicting where the market is unlikely to go. At this point we're not at an extreme, there's room in either direction, but the downside room looks smaller based on the readings above and their history.

December positions
SPX 1675/1680/1850/1855 Iron Condor. 6 days to expiration, 93% probability of success and with SPX trading at 1775 it would take a 4% move this week to threaten the 1850 short Call. It's over Johny. It's over. This little fight was won.

SPX 1600/1605 Bull Put Spread. Do we need to talk about this one?

January positions
SPX 1645/1650/1880/1885 Iron Condor 80% probability of success and nothing is close to being threatened here.This position is very unlikely to feel any threat this week due to the existing room for price to move either way at this point. Let time decay continue doing its thing here.

RUT 990/995 Bull Put Spread this was the trade made two days ago. Obviously pretty safe right now and nothing to be concerned about.

Action plan for the week
December positions will be left to expire worthless for full profit and saving closing commissions this upcoming Friday. That will close the performance tracking for the year 2013 at a +12.22% after fees. Although severely under performing the market in 2013, that number represents a growth of over +30% in the last ten months. I'm kind of proud of that. I definitely crushed the market and outperformed it in the last ten months of the year. Unfortunately the first two months were terrible. But overall I feel satisfaction with this result in what has probably been the toughest environment for Option premium sellers in a while.

As for January I believe the time for a bounce in the short term is getting closer. I will probably sell the 1880/1885 Call side of the SPX Iron Condor as soon as it reaches 75% - 80% of its maximum profit potential. Right now it is at about 70%. The rationale behind the decision is that January expiration is still 34 days ahead, and I will have an opportunity to reload the Calls once the market rebounds. I believe a rebound in 34 days will happen at some point. So, hopefully the market falls a little bit more early this week and I get to close that spread. If I don't get that chance and we immediately rebound, well then I will do nothing. I don't see the need for opening new January positions at this point and on the other hand February expiration is still too far for my liking.

Economic Calendar
This could very well be a fun week, specially with the FOMC Statement on Wednesday.
Sunday: Chinese Manufacturing PMI
Tuesday: Core CPI
Wednesday: Housing Data and FOMC Statement
Thursday: Initial jobless claims, Existing Home sales, Philly Fed Manufacturing
Friday: US GDP

Good luck this week folks!

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  1. I have been following you for quite some time. So far, I really like how you trade. It is for the most part how I would like to trade myself. Starting next year, I want to mimic some of your trades.

  2. Hey Jonathan,
    You're the most loyal reader of this blog. And you have also provided with valuable input. Thank for sticking around all this time and next year will be much better. It can only be that way. A tougher environment than this one for this strategy is not possible. And I don't think it is possible for the market to rally +25% again next year.


  3. Dan from Theta TrendDecember 14, 2013 at 11:32 AM

    Good stuff LT. I really like your take on the market and not trying to predict price. I've always felt that we can react to market changes and anticipate when they might occur, but predicting direction with consistency is impossible.

    Quick question. It looks like you hold your spreads into expiration, is that correct? Can you direct me to a post that discusses your rules or philosophy for trading IC's and/or credit spreads?


    1. Hey Dan,
      Yes I try to hold them till expiration to maximize winners and avoid closing commissions. Commissions up here in Canada cost an arm and a leg and severely impact your results. US Folks dont have to deal with that anymore with the amount of brokers and the competition among them.

      As fot the philosophy, unfortunately I dont have that page. My trading has been evolving overtime, and I believe it's an always evolving experiment :)

      But perhaps I should think about that idea.


  4. Ola LT, excellent site. I also follow you on twitter. Was wondering if you ever settled with one particular broker for your option trading? It's very frustrating when you see and hear of people in the U.S. getting .75/contract and none of this $9.99 plus stuff we get shoved down our throats here. Muchas gracias, hasta luego.

    1. Que bolá cubatogo2003!!! Thanks for reading man.
      Yes it sucks, having to pay the $9.99 per order definitely sucks. I was initially with ThinkOrSwim for 9.99 + 1.25 per contract, really awful. Then I switched to Questrade where I also invest long term. With Questrade it is 9.99 +1.00 per contract (I still use TOS for the analytical capabilities)

      I would say that the only way for Canadian residents to get rid of the charge per order ticket is by using Interactive Brokers. You can do that too, and seems to be the way to go.