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Saturday, August 30, 2014

Weekend Portfolio Analysis (August 30, 2014)

I was having a hard time while eating breakfast, thinking about what I would write in today's portfolio analysis without sounding boring or repetitive. The truth of the matter is that my action plan is still the same I outlined last week.

SPX went from 1991.74 to 2003.37 for a +0.58% gain. And because we didn't reach short term extremes I didn't enter a single trade.

Market conditions
(Click on image to enlarge)
Stochastics: 85 (overbought)
McClellan: +125 (neutral)
74% of stocks are trading above their 20 Day Moving Average (overbought)

We're not totally overbought as I like. Although, obviously this thing is closer to a short term overbought extreme than to an oversold one. I could sell out of the money October Calls here on SPX but because Calls are such a serious matter, and because I'm already short Calls on RUT as part of an Iron Condor I prefer to wait until we reach a clearly short term extreme. I want to see that McClellan oscillator showing higher numbers.


September Positions
RUT 980/990 Bull Put Spread. Easy to ride with a 99% probability of success and 20 days to expiration. This should be a hassle free winner.

SPX 1815/1820/2065/2070 Iron Condor. This Iron Condor has an 86% probability of success with 20 days to expiration. I feel it's pretty safe. The Call side is safely above the upper end of the up trend channel.

The September cycle has been pretty quiet for me this year, and if these two positions expire successfully, the performance of the overall portfolio year to date will go up to +17.88%. With three months left in the year after September expiration, that number would put me in a very good position to break the 20% mark in 2014.


October positions
RUT 1020/1030/1230/1240 Iron Condor 77% probability of success with 48 days to expiration. The position is currently losing 0.14% or ($23 dollars in a margin of $1668 for the model portfolio). That's pretty manageable, and still far from getting out of control.


Action plan for the week
Defense, defense, defense. The RUT Iron Condor is the center of my attention these days as it is the one where I might need to make adjustments. I'm optimistic though. The market's looking closer to an overbought extreme and my 1230 short Call looks far from the current price of 1174.

If RUT hits 1205 this week, my short Call (1230) will probably be close to the 30% probability number. If that happens, I'll be closing the 1230/1240 spread for a manageable loss and will redeploy capital with the 1260/1270 bear Call spread, where I would feel very very comfortable. Now, will RUT hit 1205 this week? Will the markets move up almost 3% this upcoming week? I'm optimistic that this won't happen. I think the market is just too close to a short term overbought extreme. I see 1% - 1.5% happening, not 3%. But, anything is possible, and as a trader you have to plan ahead and that's all I'm doing. Close 1230/1240 and open 30 points higher at 1260/1270 if RUT hits 1205 before September 5th.

On the offensive side, I would like to enter a secondary position in October in addition to the existing RUT Iron Condor. I would like to sell a 2090/2095 Credit Call spread on SPX and obtain 0.50 credit for it. The only way that will happen is if SPX reaches 2020. That would be a 1% push higher, which is totally possible.

Like I said in the Market conditions segment, if it wasn't because I'm already short RUT Calls, I would have probably sold SPX Calls. Right now, the 2075/2080 Call spread has a 90% probability of success and it offers 0.55 credit. I think that spread is decently safe, I just want to be extremely careful in my particular situation and that's why I'll wait for a more extreme market.


Forex
Metatrader sucks. I mean it seriously sucks. I know it is the most used platform in the world of retail forex traders, but I think that's mostly due to lack of a serious competition than anything else.

This week, Metatrader decided to disable my paper money account. Along with it, all the history that I had created tracking the results of a particular strategy for months is gone. Gone with the wind. Without a previous, alert, warning or anything.

Anyways, the LT Trend Sniper System is a very simple strategy and it won't be hard for me to track the results manually. The robot would still be riding the short EUR/USD position initiated on July 17 after a new 70 day closing low was made. The robot started to short the pair at 1.3524. Because an 8 day closing high has not been made (which is one of the exit conditions, based on price reversal). And because 8 days haven't gone by without the price making fresh lows (which is the second exit condition, based on lack of progress) then, the position hasn't been closed. EUR/USD is right now priced at 1.3130. That is a 394 pip gain so far. The stop loss had originally been placed at 83.2 pips. That means the reward so far is 4.7358 times the original risk specified for the trade. And because 3% of the capital was being risked, the gain so far represents a +14.20% growth for the portfolio. Simply amazing. I will start using this strategy with real money in 2015 if I find a good reputable retail Forex broker for Canadians. OANDA is my candidate right now. I will also release the robot to the public so whoever wants to use it, can do so. Although the strategy has always been 100% public with zero secrecy. So, anyone out there can trade it manually.


Economic Calendar
Sunday: Chinese Manufacturing PMI
Monday: German GDP, PMI and European PMI. American markets closed (both US and Canada)
Tuesday: US ISM Manufacturing PMI
Thursday: ADP Nonfarm Employment change, ISM Non-Manufacturing PMI
Friday: Nonfarm Payrolls, Unemployment numbers.

Good luck this week folks!


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11 comments:

  1. Hey,

    Just a question, have you back tested your LT Trend Sniper System?

    ReplyDelete
  2. Of course. There is a link to the system in the article.
    Cheers,
    LT

    ReplyDelete
  3. “SPX went from 1991.74 to 2003.37 for a +0.58% gain. And because we didn't reach short term extremes I didn't enter a single trade.”

    I did not open any trades either as I feel we are in no man’s land.

    “but because Calls are such a serious matter”

    Why are they a serious matter? I prefer selling bull puts over bear calls because markets tend to go up more often than go down. Also when markets go up, the VIX will go down forcing you to trade closer to the index price to get a decent premium. This is a really bad combination because you get screwed when VIX pops back up when market goes down.

    “The September cycle has been pretty quiet for me this year, and if these two positions expire successfully, the performance of the overall portfolio year to date will go up to +17.88%. With three months left in the year after September expiration, that number would put me in a very good position to break the 20% mark in 2014.”

    I like your September positions. I think you will break 20% this year. It is a remarkable achievement because I know you trade conservatively.

    “If RUT hits 1205 this week, my short Call (1230) will probably be close to the 30% probability number. If that happens, I'll be closing the 1230/1240 spread for a manageable loss and will redeploy capital with the 1260/1270 bear Call spread, where I would feel very very comfortable.”

    This is a good plan. Will you be adjusting your bull put spreads too?

    “Now, will RUT hit 1205 this week? Will the markets move up almost 3% this upcoming week? I'm optimistic that this won't happen. I think the market is just too close to a short term overbought extreme. I see 1% - 1.5% happening, not 3%. But, anything is possible, and as a trader you have to plan ahead and that's all I'm doing.”

    It will probably not happen next week. But it can very likely happen sometime in September. I think your 1230/1240 will still be in danger if RUT slowly creeps up over the next few weeks.

    “On the offensive side, I would like to enter a secondary position in October in addition to the existing RUT Iron Condor. I would like to sell a 2090/2095 Credit Call spread on SPX and obtain 0.50 credit for it. The only way that will happen is if SPX reaches 2020. That would be a 1% push higher, which is totally possible.”

    I am not sure you can get that much credit in October with the 2090/2095 by the time SPX hits 2020 because of time decay and VIX staying low. You can probably get that credit if you move down to 2080/2085. I prefer collecting around .40 to .45 for my 5-wide credit spreads. 50 credit seems a bit high to my conservative style of trading considering we are in a low VIX environment.

    “Right now, the 2075/2080 Call spread has a 90% probability of success and it offers 0.55 credit. I think that spread is decently safe, I just want to be extremely careful in my particular situation and that's why I'll wait for a more extreme market.”

    I doubt you can get .55 credit for 2075/2080 call spread as I am in that position right now. The best you can get currently is .45 credit. I think 2075/2080 is safe for now unless SPX grinds higher in September. The high probability trade is to wait for SPX to hit 2025. Most people do not have the patience and discipline to do that. The main reason I sold the 2075/2080 is to use it as a hedge against all my long positions. If I were more equally balanced with my spreads, I would wait a bit longer.

    ReplyDelete
    Replies
    1. "It will probably not happen next week. But it can very likely happen sometime in September. I think your 1230/1240 will still be in danger if RUT slowly creeps up over the next few weeks."

      The beauty is that if 1205 doesn't happen this week, then for the next one it will have to hit 1210 or 1215. Again, I feel optimistic with this trade and if I have to adjust I'll do it this confidence. I thinks RUT 1260 by October expiration is very unlikely. And no, I wouldn't be adjusting my Put spreads at that point, as I would be expecting side ways action or quick pull backs.


      "I am not sure you can get that much credit in October with the 2090/2095 by the time SPX hits 2020 because of time decay and VIX staying low."

      Remember that my analysis is just for the upcoming week.
      If SPX 2020 is hit this week, there won't be much impact in time decay, as it would just be 2 or 3 days. Also VIX is pretty low right now at 11.98 , so it won't crash from here.
      I get what you are saying. And obviously the longer it takes for SPX to hit 2020, the less the credit to be obtained for the 2090/2095 spread. If SPX 2020 is not reached this week, then for next week, it will probably have to be SPX 2030 because of the factors you mention, mainly time decay. But this is just an analysis for the next week.

      "I doubt you can get .55 credit for 2075/2080 call spread as I am in that position right now"
      Yes, probably not possible to get it as SPX is a complicated instrument to get filled on at mid price. But 0.55 credit is the mid price right now.

      Delete
    2. Your analysis is correct regarding RUT and SPX. I think we are slightly overbought but can go higher. RUT 1260 by October is unlikely as well as SPX 2090. But I don't need to predict the market. The beauty of credit spreads is that I can be wrong with my prediction but still make money as long as I placed my strikes conservatively. Unlike most traders, I only need to predict where I think the market will not go.

      Let see what happens next week. We have many market moving events happening plus the institutional traders will be back from vacation. September will set the mood for year-end positioning.

      As a small trader, I can deploy my capital only when I feel it is a high probability trade. Some of these mutual funds have to be always invested. Starting next week, I will be looking for November credit spread trades.

      Delete
    3. "I did not open any trades either as I feel we are in no man’s land."

      This is incorrect. I did opened a new trade last week. I sold the October SPX 2075/2080 credit call spread. Sorry about that.

      You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.

      Delete
  4. Because my first comment was so long, I had to break this into 2-parts. Below is the second part:

    What I did this week:

    1. I sold the October SPX 2075/2080 for .45 credit when we approached 2000 on Monday morning. The 2075/2080 credit call spread did not require additional margin because it is part of an iron condor.
    2. I closed the October RUT 1230/1240 credit call spread for a small loss because I believe we are not overbought yet. I will look to sell the 1260/1270 if RUT hits 1200.
    3. I closed the September SPX 1825/1280 credit put spread for .05 debit because I don’t want to wait another 3 weeks to try and collect .05 more. This is not a good use of my trading capital.
    4. I let my August 29th IWM 104/102 credit put spread expired for max profits.

    My current positions:

    Sept IWM 103/101 credit put spread
    Sept IWM 98/96 credit put spread
    Oct IWM 95/93 credit put spread
    Oct RUT 1030/1020 credit put spread
    Oct SPX 1725/1720 credit put spread
    Oct SPX 2075/2080 credit call spread

    You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.

    ReplyDelete
    Replies
    1. Thanks for sharing your trades so humbly and transparently man.
      And god luck this week. First weeks of the month are usually fun.
      LT

      Delete
    2. "3. I closed the September SPX 1825/1280"

      It should say 1825/1820. My mistake.

      You are welcome. I share my trades and positions so others can see how to trade credit spreads with 90% probability of success. It took me almost 3 years with trading credit spreads to figure out how to trade it conservatively. Obviously, you have figured it out much quicker than me. Kudos to you, Henrik.

      You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.

      Delete
  5. How do you determine short term extremes?

    thanks
    Jim

    ReplyDelete
  6. Stochastics
    McClellan oscillator
    % of stocks trading above their 20 Day Moving Average

    LT

    ReplyDelete