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Saturday, April 5, 2014

Weekend Portfolio Analysis (April 5, 2014)

It is that time of the month again where things at the office get pretty crazy and I don't even have time to scratch my balls. Oh well,

Mmmm....looks like it was a pretty fun Friday in the American markets. Solid bear candle closing near the low of the day, and specially RUT getting killed. But let me tell you something. Despite all the bearishness seen on Friday, it was still a positive week! SPX went from 1859.16 to 1865.09 for a 0.3% gain.

Market conditions
Below is a chart of the SPX index. Still in a long term uptrend and right now in the middle of the channel. The yellow horizontal lines represent the price levels where I have short positions. That is, where I don't want the market to go.
(Click on Image to enlarge)
Stochastics: 76 (neutral)
McClellan: -29 (neutral)
41% of stocks are trading above their 20 Day Moving Average (neutral)

And here's the RUT index. Like SPX, still in a long term uptrend. Unlike SPX, close to the lower end of the channel. Again yellow lines representing the short strike prices of my positions in RUT.
(Click on image to enlarge)

We are in no man's land here, neither overbought nor oversold. Obviously the market has room to go down, and with that scary Friday candle, it is hard to not think at least a little more downside will follow up. It is really interesting to see that the VIX is only at 13.96. I expected a higher number after Friday, but it's like people don't care! There's no fear out there.

We were pretty close to a short term overbought extreme on Friday morning when 64% of stocks were trading above their 20 DMA and the McClellan Oscillator was hovering around +100. Still not my ideal spot for selling Calls, but we were getting close. Then, the sell off. I never got to sell Calls, which would have been immediately profitable. But I prefer a missed opportunity rather than a less than ideal entry. Because of that, my activity in the April monthly options expiration cycle is over. With only 13 days to expiration (11 days on Monday) it just isn't my style. It's almost like playing weeklies: too much gamma risk without enough distance to position my strike prices where I'm comfortable.

April positions
RUT 1080/1090/1280/1290 Iron Condor
(Click on image to enlarge)
With RUT sitting at 1153 this position is looking great. 92%% probability of success, 13 days to expiration. The Put side could take some hit if RUT corrects let's say 3% or roughly 30 points this week. A 3% correction doesn't happen every week. This Iron Condor is is looking like a winner. April would end up with a small profit overall for the portfolio. 

May Positions
SPX 1695/1700/1960/1965 Iron Condor
(Click on image to enlarge)
 83% probability of success, 41 days to go. With SPX at 1865 we're far from trouble here.

Finally the last position
RUT 1000/1010 Bull Put Spread 
Obviously way out of the money and no concerns at all here.

Action plan for the week
My focus is to defend the April RUT 1080/1090/1280/1290 Iron Condor. Obviously the Call side won't be a problem. But the Put side might be. If RUT goes down to 1120 or so, I might start considering adjustments. That's an unlikely possibility in one week.

May positions don't represent a problem now. Nothing to do there this week.

As for new trades, not under these circumstances. If we reach a short term extreme, either overbought or oversold, that will get me interested. But right now, no thanks. Both May positions look solid and should provide a 4% portfolio growth for the month of May. No need to mess around with that unless very clear opportunities appear.

Economic Calendar
A fairly light week ahead in terms of news

Wednesday: Chinese Trade Balance (Exports and Imports)
Thursday: US Federal Budget Balance, Initial jobless claims, Chinese CPI and PPI
 Friday: US PPI, Consumer Sentiment.

Good luck this week my friends!

Check out 2014 Track Record 

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


  1. I took advantage of the sell-off on Friday by selling a starter position in June IWM 98/96 credit put spread for .13 credit. As I have told you before, my strategy is to sell credit put spread on IWM/RUT if it goes down 4% from a recent 10-day high. We got that 4% on Friday.

    If we go down next week, I will sell more contracts for the 98/96 position up to .20 credit. Then I will wait to see if we drop below 109 to sell more contracts in a new position such as 95/93 or lower.

    In April, I have IWM 108/106 and SPY 192/194. In May, I have SPY 170/168 & 198/200 and IWM 104/102 & 126/128.

    I have been thinking about buying debit call spreads when we are in oversold condition. Have you thought about this? I am currently doing some backtesting on over 20 years of data on RUT and SPX to see this strategy will be profitable.

    The strategy is to wait for the market to be oversold to buy some debit call spreads that are 30-50 days from expiration and 5% - 8% higher from the current price. For example, if IWM goes to 113 next week, I would consider that oversold and will buy a May 118/120 debit call spread for approximately .50 debit. I would buy a small position with the goal of selling half of the debit call spread if it doubles in value in a few days to weeks. Depending on what happens in the market, I will let the other half ride higher or sell for a profit. I can also use the half position as a hedge if I consider selling some bear call spreads above 121.

  2. I was also thinking of initiating positions in June although that would take me farther away from expiration than my usual number of days. Your IWM April position is safer than my 1090/1080 RUT Spread. Futures are looking weak this morning, We'll see how it goes.

    As for the idea of buying spreads, no I haven't given it a thought. The risk reward potential is attractive, but I haven't done any backtest whatsoever. So, I can't tell. Good luck with that man. You really have some interesting ideas in your trading, haven't you thought of starting a blog?


  3. Hey Henrik,

    This sell-off in biotech and tech is hurting RUT more than SPX. We got as low as 112.98 this morning but now we are going back up.

    As far as buying debit call spreads when we are oversold, in my backtesting this weekend, I discovered some interesting things about this strategy. 1. It is not a huge money maker. 2. It gives you some protection when selling bear call spreads that is above the debit call spread. I will need to do more extensive backtesting to confirm my findings. I do like it though because it will enhance my returns when selling spreads because it will give me the confidence to sell bear call spreads due to having the debit call spreads that will continue to make money when the market keeps on going up.

    This weekend, I will send you my paper trading spreadsheet for 2012 and 2013 using this strategy. Granted those were great years as every dip was buyable but you will get a sense of how the strategy works.

    I really enjoy reading your blog. Of all the traders that I have followed and learned from, our trading strategies are the most similar. I am not going to start my own blog for at least a couple of years. I still have so much to learn about selling spreads.