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Saturday, September 27, 2014

Weeked Portfolio Analysis (September 27, 2014)

What a fun week Mr market gave us! It's always entertaining to watch the different financial media outlets and all sorts of pundits seeing the end of the world "oh so close". The SPX index went from 2009.08 to 1982.85 for a 1.31% loss, and I was unusually active: I entered a November RUT 970/980 Credit Put spread, I increased my long term investments in these two companies and I also made this small, very low risk, speculative play on IWM using December options.

Market conditions
The long term trend is still up. My blind neighbor told me so.

The market has been a little weak lately, but that is not news. August and September are historically the weakest months of the year (surprise it is not October! In fact October shows historically positive returns on average). Regardless of the financial media justifying any weakness with current news, the truth is, there is always something happening somewhere in the world that can be used to justify any market move, both positive and negative. Here's my rant on the Media and Markets' noise from December 2011.

Ignore the noise. Go on a MarketWatch diet for a week and your trading muscles will get leaner. Here's the SPX index.

(Click on image to enlarge)
Stochastics: 27 (neutral)
McClellan: -138 (neutral)
21% of stocks are trading above their 20 Day Moving Average (oversold)

We were in a short term oversold extreme on Thursday. It was a good opportunity to sell out of the money Puts. That oversold extreme was relieved on Friday and although we're not at an extreme now, we're still very close to it. That's why I see the downside limited (SPX 1950 this week at the most). On the other hand, there's plenty of upside room and I think selling Calls is dangerous right now. Selling Puts, however, is still attractive. You can go down to the RUT 980 Puts in November or the SPX 1780 Puts for 90% probability of success plays. Very far, pretty safe moves.


October positions
RUT 1020/1030/1230/1240 Iron Condor: 93% probability of success with 20 days to expiration. RUT priced at 1119.33. This will be a winner.


November positions
RUT 970/980 Credit Put Spread: The trade entered 5 days ago. 95% probability of success, 8 weeks to expiration. Not much to say here.

I have no SPX positions at all, which is not usual. Those two Russell positions is what I have now, and here's how they look in the big picture. Yellow lines is where I don't want the index to go. I think they are pretty safe considering the downside is limited (in my opinion) and that the 1080-1090 zone should offer some decent support if we even get there.

(Click on image to enlarge)


Action plan for the week
Current positions look safe. No concerns there.

As for new positions, I would love to sell November Calls to balance my risks on both sides of the market. I'm just not willing to do it now. I need a little rally. If we see SPX 2015 or RUT 1180, that would catch my interest. Unfortunately those levels seem far for just one week, but anything can happen. If we get there, selling SPX 2090/2100 Calls or RUT 1250/1260 using November options would be my play.

Now, if instead we fall, we'll go back to short term oversold extreme. I would sell SPX October Puts. Maybe down in the 1830 area. I'm not a great fan of having 3 Put spreads at the same time in correlated indexes, because of my position size per play. But this is perhaps a risk I would be willing to take considering October expiration is close, which gives the market a smaller window of time to hurt me. Also the SPX 1830 level, when beta-weighted vs RUT, represents approximately 1010 RUT points, which is 2% below the RUT Puts I already have as part of the October Iron Condor. That represents a little diversification of risk over the price spectrum. I wouldn't do it if SPX 1830 was equivalent to RUT 1030 or something like that, as I could be in double trouble at the same time in the event of a strong correction. A big No-No for me.


Forex
The LT Trend Sniper System is killing it. And I can't but feel proud of that little and simple invention. Too bad I am just paper trading it and missed that beautiful downtrend in the EURUSD that has been materializing for two months.

Last week I said "The position will be closed only if EURUSD closes above 1.2958 any day this upcoming week".  That price was never seen and consequently the sniper is still riding this trend. 71 days today. The kind of patient most Forex traders simply don't have. EURUSD closed the week at 1.26817. That is a 842.3 pip gain since the 1.3524 open on July 17. The stop loss had originally been placed 83.2 pips away risking 3% of the portfolio. That means the reward so far is 10 times the original risk specified for the trade. So, a portfolio growth of 30% by just following this monster down trend. To be fair, I don't expect the system to catch a trend like this one every year. This one has been truly exceptional and the Sniper is just a trend follower. If the market doesn't give him a trend, the system will simply suffer. The idea is that catching one or two decent trends per year would more than compensate for the losses incurred in the fake outs.

The system will exit the position this week if EURUSD closes above 1.28457 on any given day.

There has never been any secrecy with the rules of the system and everybody can trade it manually.


Economic Calendar
Get ready for an exciting week in the markets:

Monday: US Pending Home Sales. Chinese Manufacturing PMI.
Tuesday: European CPI, German Unemployment, Europe Unemployment numbers. US Chicago PMI, Consumer Confidence. China Manufacturing PMI
Wednesday: ADP Nonfarm Employment Change, ISM Manufacturing PMI , ISM Manufacturing Employment
Friday: NonFarm Payrolls, Trade Balance, Unemployment Rate, ISM Non-Manufacturing PMI.

Good luck this week folks!

Check out 2014 Track Record


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

6 comments:

  1. “Ignore the noise. Go on a MarketWatch diet for a week and your trading muscles will get leaner. Here's the SPX index.”

    I know some traders that got scared last week because of the noise. They were afraid to sell credit put spreads because the media told them it was the end of the world and to expect a 10%+ correction.

    “We were in a short term oversold extreme on Thursday. It was a good opportunity to sell out of the money Puts.”

    We have been oversold most of this week on RUT. SPX did not hit my oversold indicator yet.

    “On the other hand, there's plenty of upside room and I think selling Calls is dangerous right now. Selling Puts on the other hand is still attractive.”

    I agreed. There are some traders who are hedging their long bets by shorting here. I think this is not a good idea because markets tend to go up longer than most people are expecting.

    “RUT 1020/1030/1230/1240 Iron Condor: 93% probability of success with 20 days to expiration. RUT priced at 1119.33. This will be a winner.

    RUT 970/980 Credit Put Spread: The trade entered 5 days ago. 95% probability of success, 8 weeks to expiration. Not much to say here.”

    I like both of your Oct and Nov RUT spreads. They are very safe right now.

    “I think they are pretty safe considering the downside is limited (in my opinion) and that the 1080-1090 zone should offer some decent support if we even get there.”

    I agreed. I plan to load up on some December credit put spreads on RUT if we get to 1100 or lower next week. On SPX, I am waiting for 1960 before selling some December credit put spreads.


    Now, if instead we fall, we'll go back to short term oversold extreme. I would sell SPX October Puts.”

    I would recommend SPX November credit put spreads. You will have more time and more buffer.

    “Which gives the market a smaller window of time to hurt me.”

    With a smaller window, you have to get closer to the underlying which can be a bad thing if it makes a sudden move down.

    What I did last week:

    Last week I was busy opening and closing positions. I was not too happy with the SPX iron condor trade as I should have waited until Thursday to sell the put spread instead of completing the iron condor on Wednesday.

    I sold the Nov IWM 97/95 credit put spread to finance my Nov IWM 116/118 debit call spread. I got in when IWM was around 110. I was happy with this trade as it appears to be where IWM bottomed last week.

    1. Closed Oct IWM 95/93 credit put spread for .03 debit. I profited .12 credit.
    2. Closed Oct SPX 2075/2080 credit call spread for .05 debit. I profited .35 credit.
    3. Sold Nov SPX iron condor (1835/1830 & 2080/2085) for .80 credit
    4. Sold Nov IWM 97/95 for .15 credit
    5. Bought Nov IWM 116/118 debit call spread for .44 debit

    My current positions:

    Oct RUT 1030/1020 credit put spread
    Nov IWM 102/100 credit put spread
    Nov IWM 97/95 credit put spread
    Nov IWM 116/118 debit call spread
    Nov RUT 1020/1010 credit put spread
    Nov SPX 1835/1830 credit put spread
    Nov SPX 2080/2085 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
  2. "With a smaller window, you have to get closer to the underlying which can be a bad thing if it makes a sudden move down."

    That is true. And normally I would go to November. But! With 3 Put spreads on, I just wouldn't feel comfortable. That's why I would make the exception and trade October. That way I get rid of two of the Put spread positions sooner.

    "...SPX did not hit my oversold indicator yet. "
    Yes, because you have another approach for measuring oversold/overbought extremes. A very interesting one by the way! Reason why I think you should start a site!!! And your approach is even more mechanical which makes it that more interesting.

    Man, I know you trade smaller position sizes than I do, but careful with all those RUT and IWM combos all concentrated around the same neighborhood (Well except for IWM 97/95 and the SPX 2080/2085)

    Still, I think odds are in your favor and you should have a good November cycle.

    Cheers,
    LT

    ReplyDelete
    Replies
    1. That was a fast reply!

      All of those positions represent approximately 25% of my portfolio. I am 75% in cash. I will also be out of the Oct RUT trade soon which will reduce my exposure to 20%. The concentration is a bit in the November RUT/IWM positions. I might close some to not be too heavily concentrated. The SPX iron condor is 4% of my account size and is hedged with SPX call spread.

      Delete
  3. Hi LT and Jonathan
    Thanks for the updates. I also sold iron condors on Wednesday, wishing I had waited to Thursday. But the SPX remains at near delta neutral for me, and I am only slightly down on my position so far due to the remaining volatility spike. So just waiting, watching, learning when able.
    Jonathan I noticed some of your spread sell prices are on the penny (ex: Bought Nov IWM 116/118 debit call spread for .44 debit). My platform TOS does not allow me to make a trade except in 5 cent increments. Are you with a different platform or do you have a special arrangement?
    Thanks
    Dave

    ReplyDelete
    Replies
    1. Hi Dave,

      "I also sold iron condors on Wednesday, wishing I had waited to Thursday."

      No one can predict the top or bottom consistently. Just give yourself plenty of buffer room for error.

      "My platform TOS does not allow me to make a trade except in 5 cent increments."

      That is weird. I am also using TOS on my smartphone and tablet and it allows me to move it in penny increments except for SPX which requires 5 cent increments. You should speak to the TOS folks to find out your situation.

      Delete
    2. Oh that's it Jonathan. I usually trade the SPX.
      Dave

      Delete