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Saturday, June 7, 2014

Weekend Portfolio Analysis (June 7, 2014)

The SPX Index went from 1923.87 up to 1949.44 this week for a +1.33% gain. I had to proactively defend the July Iron Condor and take the Call side to a safer area. Although losses suck, they are part of the deal and mitigating their impact in the losing months is key for options sellers. I still think I can pull off a positive July cycle in spite of the low vol and the adjusted position.

Market conditions
(Click on image to enlarge)
Stochastics: 98 (overbough)
McClellan: +110 (neutral)
78% of stocks are trading above their 20 Day Moving Average (overbought)

We're at a point where I think the up side is limited. Except for the McClellan Indicator, the other two show little room. Price action has also gotten too far from the 50 DMA. Look at the distance on the chart (between price and 50 DMA). That distance is generally not sustainable and often precedes a consolidation period (or pull back). I think it is a good time to sell Out of the Money Calls.

June Positions
RUT 920/930 Bull Put Spread This position is won.

SPX 1710/1715 Bull Put Spread This position should also be a winner without hassle.

July Positions
SPX 1735/1740/2010/2015 Iron Condor 80% probability of success and with 40 days to go. I'm not concerned about this one after the adjustment.

SPY 191 Put Calendar Spread The market has been going up and volatility has kept going down. The beauty of Calendars is that you almost don't feel the pain. Here's how the position looks, now with current SPY price (195.38) outside the area of profitability:
(Click on image to enlarge)
I'm not concerned with this position, as a potential loss would be a small one for the portfolio. Now, that doesn't mean I won't do anything. I will probably add another calendar and turn the whole thing into a Double Calendar this week.

Action plan for the week
The market's close to a short term overbought extreme, and due for some consolidation or pull back at any moment. If it keeps going up, I will sell out of the money Calls in RUT. For example with RUT at 1165, the 1230 July Call has an 11% probability of expiring in the money. The mid price of the 1230/1235 Call spread is 0.55 and when beta weighted vs SPX, the break even of that spread is around 2036 SPX points, which is above the 2010/2015 Call side of the Iron Condor that I currently have on SPX. That's good, diversifying the risk over the price spectrum rather than having it concentrated around the same point. Now, I won't enter that trade immediately. I will wait to see if the market makes a final little push higher.

If we decline, instead of going up, I will probably sell SPX Puts. Yes, even though the market is not oversold. That would be done as part of recovering the loss on the 1975/1980 Call spread that was adjusted last week. I didn't want to sell Puts at that moment as I was and am seeing the market close to an overbought extreme and I think better opportunities to sell Puts will present themselves. Hopefully this week or the week after.

Finally, I will seriously consider adding an SPY 195 July/August Put Calendar spread. In combination with the existing 191 Put Calendar it would form a 191/195 July/August Double Calendar that puts the position back in profitability area without drastically increasing risks.
(Click on image to enlarge)

Economic Calendar
Pretty light week ahead.

Monday: Chinese CPI
Thursday: Retail and Core Retail sale
Friday: Chinese Industrial Production, US PPI, Consumer Sentiment.

Good luck this week folks!

Check out 2014 Track Record

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  1. I was a bit early in selling the July SPX 2000/2005 on Friday June 6th. I should have waited until last Friday when we approached 1950. But I sold on June 6th because I had 2 put spread positions on IWM that I wanted to hedge in case the market goes down last week. But instead of going down, we went up up and away. So my July SPX 2000/2005 is showing a small loss at the moment. This position is not worrying me currently but will need to be roll into August if we are still above 1900 in 2 weeks.

    My current positions:

    July SPX 2000/2005 bear call spread
    June IWM 96/94 bull put spread
    July IWM 95/93 bull put spread
    July IWM 123/125 bear call spread (I placed this trade last Friday when we approached 116. When IWM is up 8% or more in less than 21 days, history shows that it is a good time to sell far OTM bear call spread)

  2. Thanks for sharing your positions.
    Hey, as for those trades, do you have rules for adjustments? I think that's the part of your system I'm missing. I'm curious.


  3. I wait until the price is around 10 points or less from the short strike to adjust. I am willing to wait longer than you to adjust. This means my debit will be larger when I do make an adjustment.

  4. Hi LT and Jonathan
    Well, I had a very similar week to you LT.
    I do like calendars and diagonals in this environment but I am wary to build a major position based on time spreads because the vegas are very high, and the position is open to a big hit if the volatility gets crushed (as on Friday).
    I have been trading with a very wide split strike iron butterfly on SPX the past six months as my standard position. But with the lower volatilities, in June I started buying a call and put at the same time as insurance. The models indicate the call/put strangle will cut my delta loss on a faster move and they also counter the negative vega of the butterfly position in an already low vega environment. At least that’s the plan. I didn’t execute this month (Jun) very well.
    I purchased one JUL 1950 call and 1830 put two weeks ago for 22.00. The next day I sold my iron butterfly 4 x JUN 1780 | 1850 | 1970 | 2030 for 5.15. Two weeks ago was a very good week and I found myself up over $800 based on mark prices. Last Monday I had convinced myself that the SPX was at a top (mistake #1) and I wanted to close my position. I sold the insurance strangle first (mistake #2) because it was delta positive and I feared it would lose value if the market dropped. I sold for $22, a small loss. Then I had difficulty closing my iron butterfly positions at anywhere near mark value, so the end result is I still have my base position in place. I made a similar adjustment to LT on Friday purchasing 2 call verticals 1970 | 2000 to cut my deltas and make some space on the call side.
    So for me, I am still positive for JUN, but I would rather be out and thinking about JUL, and now I am keeping a close eye for possible further adjustments on the upside. Could sure use a mild down day or two to ease things down a bit.
    Good luck on your trades this week.

  5. Thanks for your input Dave. Always good to see how others are faring at their craft

    1. Hi LT
      Well I purchased two more verticals yesterday call verticals 1970 | 1990, to move my short call positions to 1990 or 2000. The market just seems to want to go higher, and I am like you, I cannot afford to watch all day long, and I don't want to check at the end of the day to find out I got flattened.
      I can still manage a profit for the month around $700 but if I have to adjust further I will likely just close out the position.
      The SPX is up about 2% higher than I expected, so the nice thing about selling options is you can still do alright as long as you are patient and a little nimble and a whole lot of humble when you need to be.
      Good luck