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Saturday, October 4, 2014

Weekend Portfolio Analysis (October 4, 2014)

This week I sold a November SPX 1755/1760 Credit Put spread on Wednesday and I initiated a long term investment position in Agrium Inc on Thursday attracted by lower prices in this stock and its yearly dividend of 3.41%. My projected passive dividend income is now close to $150 bucks a month on average. Not a large amount by any means, but money I don't have to work for for the rest of my life. All I have to do is be able to breath and keep myself alive for 30 days to get that favorably taxed income.

The S&P500 started the week at 1978.96 and closed at 1967.90 for a 0.56% decline. According to the main financial media outlets, US markets were concerned about Ebola on Wednesday. The question is, was that concern suddenly dissipated on Thursday that the markets rebounded? I think Ebola was the most common subject on the headlines to justify the market decline early in the week. Yes, there were also protests in Hong Kong, some issues in the middle East etc. But I think Ebola was the main "thing". Anyways, how do they justify the reversal on Thursday and Friday after looking so dumb? Same old story: the media using headlines to explain daily market moves. I don't really know how you could win this game if you followed and believed the financial media. You are forced to become ironic and sarcastic over time, which could make you sound a bit arrogant at times as I may be sounding right now. But really, it's just survival. You HAVE TO ignore all the pundits selling fear. You HAVE TO. How about the market was due to go down simply because valuations were (are) a little over extended and investors are not so attracted? Also, isn't it funny that the market corrects and rebounds exactly around technically significant points and that those days there always happens to be a headline to explain things?....only after the fact?

Market conditions
Just look at the rebound. A thing of beauty, right at the lower boundary of the long term uptrend channel:
(Click on image to enlarge)
Stochastics: 30 (neutral)
McClellan: -84 (neutral)
24% of stocks are trading above their 20 Day Moving Average (oversold)

Back to no man's land but with way more upside room than downside. To me, this is not the time for selling Calls. At this point I usually prefer to sit on my hands until a new extreme is reached.


October positions
RUT 1020/1030/1230/1240 Iron Condor: 97% probability of success with 13 days to expiration. RUT priced at 1104. This position should give me no problems this week unless something truly drastic happens in the world.

November positions
RUT 970/980 Credit Put Spread: 94% probability of success, 7 weeks to expiration. Won't be a problem in the near future.

SPX 1755/1760 Credit Put Spread: 98% probability of success, 7 weeks to expiration. I'm sleeping like a baby.


Action plan for the week
All three positions look pretty good to me and they shouldn't be a problem in the next few days. Obviously I'm not a big fan of having 3 Put spreads on, but fortunately one of them will go away in just 13 days. So, I'm not overly concerned this time. Also, November Put spreads are comfortably out of the money.

As for potential new trades, I want to balance my exposure by adding a Credit Call spread, but right now is not the right time. If I can get to sell November SPX 5 point wide Call spreads above the 2090 area for at least 0.50 credit or RUT 10 point wide Call spreads above the 1250 area for at least 1.00 credit I would do it without hesitation. However, those opportunities seem remote. SPX would need to rally about 50 points. Although possible, it is unlikely to happen in just one week as it is a greater than 2% move up.

If we go sideways this week, I'll do nothing.

If we go down, I won't do anything either. I don't want to add more Put side exposure. In this case I'll limit myself to defending existing Put spreads if they need to be adjusted.


Forex
The LT Trend Sniper System is still riding the short EURUSD position initiated on July 17 this year. Last week I said: "The system will exit the position this week if EURUSD closes above 1.28457 on any given day." It was never even close, EURUSD keeps consistently falling and the Sniper is just riding the trend indefinitely.

EURUSD closed the week at 1.2514. That is a 1010 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 12.1 times the original risk specified for the trade. That represents a portfolio growth of more than 36% by just following this monster down trend. This is remarkable. 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 1.2780 on Monday  or if it closes above 1.2684 any other day of the week.


Economic Calendar
Lightest week ever in terms of economic numbers. I don't see anything significant.

Good luck this week folks!

Check out 2014 Track Record


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4 comments:

  1. Hi LT and Jonathan
    I agree with you completely LT. The marked movement and volatility changes rarely seem to coincide with the news items the financial media tries to use to explain daily activity. I would not be surprised if they already have their articles prewritten, like obituaries, to use on demand to explain the markets. To me the volatility seemed to crescendo and release with the US jobs report, rather than any other likely explanation. I can't explain the market. I have done much better floating with the currents that I cannot predict.
    I am learning. I did not have the will to sell any more put spreads this week, but I did repurchase all of my call spreads for 20cents. There was a line from Karen the supertrader that Jonathan pointed me to - "once I have the premium, I don't want to give it back." So I am pleased to have assimilated this facet into my trading.
    Wish you all a good week. Beautiful weather here.
    Dave

    ReplyDelete
    Replies
    1. Hi Dave,

      I had to forced myself to sell some credit put spreads because the opportunity was just too good to pass up.

      I like that line from Karen.

      Delete
  2. “This week I sold a November SPX 1755/1760 Credit Put spread on Wednesday”

    You got in at a good time. SPX did go down another 30 points from your buy point the next day but no one can consistently time the market perfectly. That is why we leave a big buffer in case we are wrong with our timing. As far as market timing you are doing pretty well because of your oversold and overbought indicator.

    “My projected passive dividend income is now close to $150 bucks a month on average. Not a large amount by any means, but money I don't have to work for for the rest of my life. All I have to do is be able to breath and keep myself alive for 30 days to get that favorably taxed income.”

    You have a spelling error. It should be breathe not breath.

    I am interested in buying common shares in AAPL next time it drops to 90. I will then sell some covered calls to earn monthly income as well as get a quarterly dividend.

    “The media using headlines to explain daily market moves.”

    You are missing ‘is’ after ‘media’.

    Exactly. Most of the time, markets go up and down for reasons that are above our pay grades. The media loves to explain why the market is going up and down. They are consistently wrong. I trade based on whether the market is oversold or overbought.

    A colleague of mine is learning spread trading from me and was very concern about the market last week. He was telling me about a potential crash and whether it was wise to sell credit put spreads. I told him to not worry and sell the December IWM 92/90 credit put spread.

    “Back to no man's land but with way more upside room than downside. To me, this is not the time for selling Calls. At this point I usually prefer to sit on my hands until a new extreme is reached.”

    Same here. I want to see if we get another dip to last week’s lows so that I can sell some more credit put spreads for December.

    I like your October and November positions. Your November positions are lower than my positions. I was not too happy with my timing for the November positions. I am also disappointed in myself for not having some credit call spreads for my RUT October and November positions.

    Even with almost all credit put spread positions concentrating on RUT/IWM, my account from peak to trough was down 2.3% while SPX was down almost 5% and RUT down more than 7%.

    “As for potential new trades, I want to balance my exposure by adding a Credit Call spread, but right now is not the right time. If I can get to sell November SPX 5 point wide Call spreads above the 2090 area for at least 0.50 credit or RUT 10 point wide Call spreads above the 1250 area for at least 1.00 credit I would do it without hesitation.”

    I really need some credit call spreads too but will not try to get in prematurely. I need RUT to be above 1160 and SPX above 2050 for me to sell credit call spreads with confidence. Unlike you, I will be doing this for December spreads as I already initiated credit put spreads for December expiration

    What I did last week:

    On Wednesday, I did 2 trades:

    1. Sold December RUT 950/945 credit put spread for .50 credit
    2. Sold December SPX 1730/1725 credit put spread for .45 credit

    If I had waited during the Thursday’s low, I would have sold at a lower strike and obtain the same credit but no one can time the market perfectly every time.

    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

    Dec RUT 950/945 credit put spread
    Dec SPX 1730/1725 credit put spread

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

    ReplyDelete
  3. Thx for the comments both.
    Dave,
    I'm glad you had some gains.

    Jonathan,
    English is not my first language. There will always be spelling mistakes for you to keep having fun.

    Cheers,
    LT

    ReplyDelete