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BookingAlpha Option Trading Advisory

Saturday, December 27, 2014

Weekend Portfolio Analysis (December 27, 2014)

We had a pretty quiet week in the markets as usual this time of the year. SPX opened at 2069.28 and closed at 2088.77 yesterday for a +0.94% gain and the index is now up more than 13% for the year.

Market conditions
(Click on image to enlarge)
Stochastics: 96 (overbought)
McClellan: +115 (neutral)
Stocks above their 20 Day Moving Average: 74.62% (overbought)

We're certainly entering overbought territory, although there is still some room as pointed by the McClellan oscillator. We're also getting close to the top of the range in the long term uptrend channel. Current market price is more than 3% away from its 50 Day Moving average which usually signals some sort of sideways action going forward.

At the same time, we are entering what is traditionally the strongest period of the year for the market. To sum up, I believe that, although we are close to overbought, the market will keep this bias for a while. I don't see a big +2% day happening, but I think the slow upwards bias will continue this week and the week after that. As the market enters this period of peace, volatility also tends to contract making the options selling business that much shittier.

As you know, I do sell out of the money Calls in overbought markets. It has been challenging in the last two years, so I have to be much more careful. Last week I mentioned that I would sell the January 2160/2165 Call spread for 0.50 credit or better. Unfortunately I never got the credit I wanted. But that idea is still in play for me. If you are going to sell Calls, be extremely careful, well out of the money and keep it small so you can defend it and cover the loss in an eventually necessary adjustment.

January positions
SPX 1820/1825 Credit Put Spread
$120 credit. 20 days to expiration. No concerns here, this should be an easy winner to start the year on the right foot.

February positions
SPX 1875/1880/2190/2195 Iron Condor
$320 credit. 54 days to expiration. No concerns here.

Action plan for the week
My two positions look safe at the moment and I won't have to do anything to them in the next few days.

As for new trades, I still want to sell the January SPX 2160/2165 Call spread for 0.50 credit or better. We'll see if I get the opportunity.

If the market moves sideways, or if it falls, I won't be entering new trades this week.

The LT Trend sniper is short EURUSD since last Sunday. The entry price was 1.22229 and with the Euro closing the week below 1.22 the trade is in profit for now.
(Click on image to enlarge)

For more information about this strategy, visit the LT Trend Sniper's page

Economic Calendar
A pretty quiet week ahead on the news front
Tuesday: US Consumer confidence, Chinese HSBC Manufacturing PMI
Wednesday: Chicago PMI, Pending Home Sales, Chinese Manufacturing PMI
Friday: German and European PMI, US ISM Manufacturing PMI

Good luck this week folks! Happy holidays and here's to a better 2015!

Check out 2015 Track record

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  1. "If you are going to sell Calls, be extremely careful, well out of the money and keep it small so you can defend it and cover the loss in an eventually necessary adjustment."

    Selling calls was tough the last 2 years unless you only sell at extreme overbought conditions when RUT up 12%+ in 21 days or SPX up 10%+ in 21 days. Hopefully we will have more luck in 2015. I did not take any new positions last week. I will probably not take any new position next week either. Many of my positions will be expiring next week.

    My current positions:

    IWM Dec5 105/103 cps
    IWM Dec5 93/91 cps

    SPY Dec5 190/188 cps

    RUT Jan1 1100/1090 cps
    Rut Jan1 1140/1130 cps
    RUT Jan 1050/1040 cps
    RUT Jan 1250/1260 ccs
    RUT Feb 1000/990 cps

    SPX Dec5 1900/1895 cps
    SPX Dec5 2125/2130 ccs
    SPX Jan1 2000/1995 cps
    SPX Feb 1850/1840 cps
    SPX Feb 1800/1795 cps
    SPX Feb 2175/2180 ccs

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

    1. As I said earlier, we inevitably have to be more conservative on the Calls selling part of the business and my trading in 2015 will reflect that.

      Good solid positions as usual.
      Thx for sharing.

    2. Hi LT,

      I am a bit nervous about my credit call spreads if this market continues to climb higher in January. Next week, I plan to buy some debit call spreads as insurance for my Jan RUT 1250/1260 credit call spread. I will also buy some debit put spreads in RUT and SPX in case we have a minor sell-off in January. I am thinking of closing some of my Feb credit put spreads and rolling up to take in additional credit if we have a series of down days early next month. This will help finance the cost of buying the debit spreads.

      For example, the Feb RUT 1000/990 cps can be closed for cheap. I can then sell Feb RUT 1100/1090 cps to take in additional credit. I can also close the Feb SPX 1800/1795 and open a new Feb SPX 1900/1895 cps to take in more credit. Additionally, I am now waiting to sell March cps if we have another minor sell-off in January.

      If RUT hits 1225, I want to sell Feb 1300/1310 ccs to iron condor with my Feb 1000/990. As you know I think SPX will be overbought if it touches 2095. I am already in Feb SPX ccs, so I will not be adding more to my ccs positions. We know that even when the market is overbought, it can continue to go higher.

      I enjoyed our conversations this year. We both learned a lot about the market and trading credit spreads. I wish you a happy new year. I believe 2015 will be a good year for credit spread traders.

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