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Sunday, March 30, 2014

Weekend Portfolio Analysis (March 30, 2014)

SPX opened the week priced at 1867.67 and closed at 1857.62 on Friday, that's a 0.54% decline. The SPX is now only up 0.5% in 2014. Not quite 2013 like numbers.

Market conditions
Despite everything, the long term trend is still up and the uptrend channel started on November 16, 2012 is still in play.
(Click on image to enlarge)
Stochastics: 26 (neutral)
McClellan: -31 (neutral)
33% of stocks are trading above their 20 Day Moving Average (neutral)

We're in the middle of the channel.
You know it already. This is no man's land, and I can't enter a new position under these circumstances. I entered a new RUT Credit Put Spread on Thursday when the market had reached a short term oversold extreme, but those conditions were a little relieved that same day in the afternoon with some follow up on Friday. Right now, I would rather wait for a break out of this range or a sell off, and then I would enter new positions.

April Positions
RUT 1080/1090/1280/1290 Iron Condor With RUT currently at 1151 this position is not looking bad. 83% probability of success, 20 days to expiration. The Put side could take some hit if RUT corrects let's say 3% or roughly 30 points. But I like the chances of this position, and it is looking like a winner.

May Positions
SPX 1695/1700/1960/1965 Iron Condor 79% probability of success, 46 days to go. With SPX at 1857 we're far from trouble here.

RUT 1000/1010 Bull Put Spread The easiest to ride of all. Way out of the money and 95% probability of success.

Action plan for the week
As much as I would like to enter a final new position in the April expiration cycle, I can't force trades where the opportunities are not clear. If we don't get a break out or sell off this week (and I'm probably talking about +2% or -2%) I will do nothing. Remember my mantra: I don't predict or anticipate market rallies or sell offs, I just react to them once they happen and reach an extreme level. If I don't trade this way, and enter positions before the rallies or sell offs take place, I would be getting killed constantly.

As for current positions, they seem safe enough so I don't anticipate having to make adjustments on them or anything like that this week.

Economic Calendar
Monday: Chicago PMI, Chinese Manufacturing PMI
Tuesday: ISM Manufacturing PMI and a lot of data from Europe, where the German PMI and unemployment numbers are the most important
Wednesday: ADP Non Farm Employment change
Thursday: Initial jobless claims, Non-manufacturing PMI
Friday: NonFarm Payrolls, Unemployment Rate
So, there's a lot of data coming out this week and it could help in moving this market convincingly in one direction. Thanks for dropping by folks, and good luck with your trading!

Check out 2014 Track Record 

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  1. I think it might be too late to enter an April position. I don't like to sell options with less than a month to go since it will make me get closer to the the stock's price and the gamma risk can be huge if the stock goes against me during the last few days. I don't like to take my spreads to expiration anymore as I got burned a few times.

    I like how Karen does it. She sells 56 days out and tries to close it for 50% or better gain within 16 days of opening the position. If not, she will let it expire worthless.

  2. It is true that entering new trades so late in the cycle is not the ideal situation. Because time decay has done a lot of its work, you cannot go as far out of the money as you can do with 40 or 50 days to expiration. But I don't want to miss good opportunities if they present themselves. Now that you mention Karen, you probably saw how she sells Call options two weeks before expiration. So much for gamma risk and delta exposure. But one thing is true, I need it to be a clearly extreme market and position my self in strikes where I am absolutely comfortable.

    Thanks for the comment.

  3. Yes. You are right. She does like to sell call options with 2 weeks to expiration. I have been thinking about giving my call spreads less time than my put spreads because markets tend to go up slowly and for a much longer time than we think. I am not comfortable selling a 56-day bear call spread even if we are in no man's land. It seems that SPX/RUT do have a tendency to gravitate higher during bull markets. I rather not stand in front of this train.

    I like that she sells more put options than call options. She also mentioned that selling call options is more challenging. In looking through all of Adam's historical trades since 2011, I have yet to see him sell any bear call spreads even though it would have enhanced his ROI. Since the shellacking that I took in 2012/2013, I am less enthusiastic about selling bear call spreads.