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Saturday, January 4, 2014

Weekend Portfolio Analysis (January 4, 2014)

Welcome to the first weekend portfolio analysis of 2014. If you're new to the site, this is the article I write every weekend analyzing every position in the portfolio and outlining the action plan for the upcoming week. My little contribution to the options trading community, specially premium sellers.

This week SPX opened at 1841.47 on Monday and closed at 1831.37 yesterday for a 0.55% decline. However, we are still trading in the same uptrend channel that has been in  place for 13 months. Therefore, the long term trend is still up.

Market conditions
(Click on image to enlarge)
Stochastics: 61 (neutral)
McClellan: +89 (neutral)
71% of stocks are trading above their 20 Simple Day Moving Average in the NYSE (overbought)
69% of stocks are trading above their 50 Simple Day Moving Average in the NYSE (almost overbought)

The market is not extremely overbought, which gives it some upside room. Judging purely by the uptrend channel boundaries, a 1% push higher this week is possible, but I believe more than that is unlikely. As for the downside, there's obviously plenty of room and I wouldn't sell Puts at this point. In fact, because we're not overbought neither oversold I wouldn't sell any out of the money options at this moment and would rather wait for better opportunities.

January positions
SPX 1645/1650 Bull Put Spread Oh life is so good!

RUT 990/995 Bull Put Spread Why can't life be this simple?

January positions are pretty safe by now and in all likelihood they will expire worthless for full profit in 13 days. The January 2014 monthly expiration cycle will reflect a +4.20% portfolio performance before commissions and +3.72% after commissions.

February positions
RUT 1040/1045 Bull Put Spread With RUT currently at 1156 this position is 111 points away from being threatened. The short Put option (1045) is showing an 11.54% probability of expiring in the money, which is nice. Looking at historical data between 1950 and 2013 for the S&P 500, the largest market decline that ever took place in January was -8.54%. That's the worst in 64 years. Assuming the SPX index goes to that extreme and matches that negative record this January, it would close at 1688 at the end of the month. Using the super useful Beta-weighting feature built into ThinkOrSwim, and beta weighting RUT against the SPX, the current 1045 RUT short Put is equivalent to 1680 SPX points, which is bellow the 1688 extreme scenario I calculated above. So, I believe this position is very safe and unlikely to be threatened.

Action plan for the week
There's nothing else to do in January. The two remaining positions will sit there untouched.
As for February, I feel comfortable with the RUT 1040/1045 Bull Put Spread and won't need to touch it this week. I would like to sell a RUT Bear Call Spread and complete an Iron Condor in February but I would like to see a 1% push higher before doing that. Selling the 1235/1240 or 1240/1245 Call Spread for 0.50 credit would be a very good play in my opinion and safely out of the uptrend channel even assuming the market keeps going up and up for another 45 days.

If we don't get the push higher and I can't sell the Bear Call spread at the prices I would like, then as usual, I won't enter this trade.

Economic Calendar
Monday: US ISM Non Manufacturing PMI
Wednesday: ADP Non Farm Employment Change, Chinese CPI and PMI
Thursday: US Initial Jobless claims.
Friday: Non Farm Payrolls, Unemployment Rate

Good luck this week folks!

Check out 2014 Track Record

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  1. Hi Henrick. I like your plan for the RUT Feb position. I have a similar put spread at 1050/1040. I will look to iron condor when we become more overbought. I personally don't see the market have another 30% gain this year. It will be a lot choppier and not a smooth path up.

  2. Glad to see you embracing the Call side again Jonathan!