LTOptions at a 33% discount during the Year End Holidays.
Tell me More

Saturday, March 8, 2014

Weekend Portfolio Analysis (March 8, 2014)

SPX went from 1857.68 to 1878.04 this week for a +1.10% gain, making the life of Index option premium sellers a little bit more miserable. Trading the March expiration cycle has been a very challenging exercise. I usually start trading a month expiration cycle two months in advance. So, after the January expiration cycle I started looking, and putting trades for the March cycle. Well, this is what has happened between January expiration and today:

Two very strong short term trends. One to the downside, threatening Credit Put spread positions and then another one to the upside, threatening Credit Call spread positions. We have been tested on both sides, or at least I have been, trading the March expiration cycle.

Of course in hindsight it is easy to say, "man you should have waited for those extended trends and then deploy your positions once the trends have fully developed". But waiting for "fully developed or extended trends" many times leave you missing opportunities. Being a left side of the chart trader has never been easier. Now, become a right side of the chart trader with skin in the game and it is a totally different ball game. But hey, it is not all bad and terrible. We live a pretty fucking awesome life in the first world, and when the market goes up like this, yes volatility is low and selling options becomes more difficult, but on the other hand my Long Term investment portfolio is happy :)

On Tuesday, I rolled up the April RUT 1020/1030/1245/1255 Iron Condor to 1080/1090/1280/1290. The initial position lost $420 but the new one is well positioned and has a credit of $460. So it can recover the loss and neutralize the damage. But that's April expiration. That same day I opened a March RUT 1240/1250 Credit Call spread in RUT for $280 credit. This will be the defining trade in March.

On Thursday, I closed the March SPY 191/193 Credit Call spread for a small loss before market close, in anticipation of a possible rally the next day with the jobs report.

In spite of everything, chances are now very high that I will close March positions with a positive balance overall. A small portfolio growth, but growth in the end. So far, I am not having a stellar year, but I'm not having a bad one either. And I'm definitely doing much better than in 2013.

Market conditions
(Click on image to enlarge)
Stochastics: 90 (overbought)
McClellan: +29 (neutral)
74% of stocks are trading above their 20 Day Moving Average (overbought)

We're a little overbought but not all the stars are aligned. The breadth indicator (McClellan oscillator) is showing that there is plenty of upside room. Notice however, how in spite of the fact that the market has been going up, the McClellan oscillator has been going down and down. What does this mean? Well, as a breadth indicator McClellan measures the proportion of stocks that are going up in the market vs the stocks going down. This means that the market has been reaching new highs while more stocks have been falling than going up. Suggesting that the index price has been driven up due to some individual stocks that went up and happen to have more weight in the index. The most recent market rally has not had the participation of all the stocks, in fact the majority of them have been falling in the last few days. Because of that, I think a short term top is close. Maybe it was already reached on Friday. Selling the April SPX 1950/1955 Bear Call spread is an attractive idea, considering that it is also above the upper end of the uptrend channel projected to April expiration.

March positions
RUT 940/950 Bull Put Spread very safe. Will expire worthless in 13 days.

SPY 159/161 Bull Put Spread Also very safe and way out of the money.

RUT 1240/1250 Bear Call Spread 82% probability of success, 13 days to expiration. The short strike above the projected uptrend channel. I like this position, and I thinkit has a decent chance of making it to expiration fully profitable.

April positions 
RUT 1080/1090/1280/1290 As a brand new position, it is obviously safe, and I won't have to touch it in the next few days. 79% probability of success, 40 days to expiration.

Action plan for the week
My main goal at this point is to have a profitable March exp. cycle. And for that I will take special care of the 1240/1250 RUT Bear Call spread. I don't anticipate being threatened this week, but who the hell knows. If the position is threatened, I will have to roll it up, and with just a few days left, I will probably roll out to April. In which case, March would end up being a negative month (ouch). If we stay sideways or go down, I won't touch this position.

Other than that, I don't really want to do anything else. I could sell the April 1950/1955 SPX Call spread trying to get filled at 0.50 (mid price is 0.60 right now, so a 0.50 fill should be possible), but the idea that I may need to roll the March RUT Call spread out to April prevents me from being totally resolute to doing it.

Economic Calendar
Sunday: Chinese CPI
Friday: Chinese industrial production, US Retail and Core Retails sales. Initial jobless claims

Good luck this week folks!

Check out 2014 Track Record

Go to the bottom of this page in order to see the Legal Stuff


  1. The March RUT bear call spread can be in trouble if we have a rally next week. I am curious why you did not re-established the March SPY bear call spread after the rally fizzled out on Friday. Nice analysis as always.

    I like your 'Notify me' feature. It is so nice to know when I get a reply back to my comments via email.

  2. Yeah, I'm not saying the RUT spread wont be in trouble. Only that I think it looks relatively safe.
    For redeploying the SPY March spread I was expecting SPY to go higher than189, and, well it never happened. At this point I have to be extra careful because I have two bear call spreads on.

    Thanks for your comments

  3. I think few people thought RUT was gonna be above 1200 so soon after the Ukraine crisis did not take a turn for the worse. The bottom line is that no one can reliably knows what is going to happen next in the market. Either we go higher, lower or range bound. If we did know what the market was gonna do, we would all be as rich as Bill Gates.