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Saturday, January 17, 2015

Weekend Portfolio Analysis (January 17, 2015)

Yesterday was January expiration and with that I'm officially up for the year. The SPX 1820/1825 Credit Put Spread, as anticipated, expired worthless yielding max profit. This was the only position I played in the January expiration cycle. The return for January after trading costs is +1.12%. There was a point in the cycle where I should have sold the 2150/2155 Credit Call spread, but I was excessively patient waiting for the 2160 level to reach 10 deltas, which never happened. Had I sold the 2150/2155 Credit Call spread we would have been talking about a 2% or 3% growth for the month instead of 1.12%. Anyways, the S&P500 is down 1.9% for the year which means the vast majority of investors in the universe is negative, so I'm fine with my small out performance.

Market Conditions
The SPX index went from 2046.13 down to 2019.42 during the week for a 1.31% loss. If there is one thing we cannot complain about this year so far is that the markets are moving! Price rebounded on the diagonal uptrend support line,....just like magic. Incredible how those lines work.

(Click on image to enlarge)
Stochastics: 25 (neutral)
McClellan: -6 (neutral)
Stocks above their 20 Day Moving Average: 39% (neutral)

Believe it or not, we're not at an oversold extreme. At least not according to any of my 3 favorite indicators. This is the reason why I haven't sold a Credit Put spread yet as I have been patiently waiting for a strict oversold condition. Certainly with a high VIX above 20 you can do that and position yourself far out enough. I wouldn't criticize it. I'm just trying to stay mechanical and particularly I'm in no rush at all to enter new positions as I have an Iron Condor on that is doing pretty good and should bring a 3% portfolio growth. If I wasn't in that position, I would have probably sold a Credit Put spread on Thursday. But having something on, that is working, suddenly removes that pressure from my mind of having to have something working making me money at all times.

I know I have been extremely patient with my 2015 trades so far, which may be very boring for my readers. But this is not about being a Wild Wild West cow-boy. It's about being effective and profitable in a sustainable and scalable fashion. It's about capital preservation. The model portfolio that I showcase on the track record is based on a $10,000 starting balance at the beginning of the year. With that amount, what the hell, I could be more active and aggressive, I wouldn't care about losing that amount of money. But that's just a theoretical number. I trade a much larger amount and capital preservation and being conservative is a must. That's the style I want to show on this site after seeing so many options sellers blow out over the years.

Anyways, absolute no man's land for the SPX. At this point violent moves can take place in either direction. No individual credit spreads for me at this point. Potential Iron Condors yes, taking advantage of the high volatility. We'll talk about that later.


February positions
SPX 1875/1880/2190/2195 Iron Condor
$320 credit. 33 days to expiration and 80% probability of success. Looking good. I'm not really concerned with this Iron Condor. It has been a good ride so far. This is the only position in the portfolio at the moment. Trading stress levels at a year low right now.


Action plan for the week
We will be exactly 8 weeks away from March expiration this Friday. Time to start looking at potential candidates for the new cycle.

With a neutral market I prefer to trade Iron Condors, especially 8 weeks before expiration where there is a lot of time premium to take advantage of.

Strictly looking at the Calls and Puts with a 10% probability of expiring in the money, it all points to the SPX 1720/1725/2150/2155 March Iron Condor at the moment. While I like the Put side of that position, I'm not too happy with the Calls as they are well below the upper end of the projected uptrend channel. Obviously the markets will move before Friday and the strike prices for my Iron Condor will change, but if it all stays like this or if the markets go down, I won't be selling the Call side.

If I use RUT as an alternative, the 980/990/1280/1290 Iron Condor is my candidate and I feel comfortable with those strike prices. I feel I have to be especially careful with the Calls this time of the year and the 1280 price level by March in RUT seems unlikely, and even if it is reached, it is a level I can defend with high probability adjustments further up. So, that's it: Iron Condor by Friday, and my candidate right now is the Russell Index.

As for February, I'm not 100% done with February. There are still 33 days to expiration and good opportunities could show up. If we hit an oversold extreme this week, I'll sell out of the money Puts on SPX. An extreme overbought level won't be reached so quickly, so I'm not even going to talk about the possibility of selling Calls on the February expiration cycle. Not this week.


Forex
The LT Trend Sniper system, which has been on a short EURUSD position since December 21, 2014, made more progress this week as the Euro seems to be in an unstoppable free fall.

In the picture below, the green dotted line represents the entry level, the red dotted line above is the Stop Loss, which won't be hit as this trade is a sure winner at this point.

(Click on image to enlarge)
My Forex account is up 9.62% for the year. This is not a locked in gain until the trade is closed. Based on the current candles formation the robot should stay in the short position for the entire upcoming week.

The LT Trend Sniper is the entire opposite of my Options selling system. As a typical trend follower, the LT Trend Sniper will have more losers than winners. But the losses are well controlled and when it wins it wins big. For example, from January 1, 2014 until today, the strategy would be up +31.7% with just 2 winners vs 5 losing trades. Obviously, trading it, sticking with it is difficult when you have more losers than winners. Also having huge floating gains and not intervening manually to close the positions and lock the gains is incredibly hard to resist. Profitable trading is hard by definition and this system is no exception. Most mortals wouldn't be able to follow it.

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


Economic Calendar
Monday: China GDP, China Industrial Production
Tuesday: German ZEW Economic Sentiment
Wednesday: US Building Permits and Housing Starts
Thursday: German, US and China Manufacturing PMI
Friday: US Existing Home Sales

Good luck this week folks!

Check out 2015 Track record



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4 comments:

  1. I really enjoyed reading this weekend’s analysis. You are demonstrating great patience and discipline by following your rules. I missed a few opportunities in December and January to take in more credit by selling credit call spreads and credit put spreads but I want to stay conservative and not over-trade. The more money you have, the more important capital preservation becomes.

    I let my IWM Jan 105/103 & 125/127 iron condor expired worthless yesterday for a 3.65% gain in January for the portfolio. I am off to a good start in 2015. The February positions are also profitable at this time.

    Current positions:

    Feb RUT 1000/990 cps
    Feb SPX 1800/1795 cps
    March 31st RUT 1000/990
    March SPX 1720/1710 cps
    You can follow me on Twitter @lienjonathan where I tweet my high probability credit spread trades in real-time for free.

    My Facebook page: https://www.facebook.com/pages/Create-Monthly-Income-Fund/857243867661638

    Here is a link to all my trades and results: https://docs.google.com/spreadsheets/d/1xpG88wxQeoAKyIik3OKhbxbS3qInINGaa4Boxzp5HEY/edit?usp=sharing

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    Replies
    1. Hey Jonathan,

      Thanks for sharing all your trades. You had a great 2014. Congratulations! Your success I can tell was mostly based on being conservative with the Call side. Good lessons.

      You're off to a great start in 2015. Keep it up. I remember I started off +3.72% in 2014 and then the rest of the year I managed to screw it up. You keep it up my man!

      Cheers,
      LT

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  2. Hello LT, is good to see you start the 2015 year in green. I did not have January positions, only 1840/50 SPX Feb. I did not get filled on my intention to sell March Put Spreads 1750, so I will try again this week if the index move down. Jonathan liked a lost your March SPX 1720/10 @ 0.60

    Cheers from Madrid

    ReplyDelete
    Replies
    1. I'd say your Feb position looks good. As for March, I think the level you are targeting is also good. Hey Hector how have you been doing in your Forex trading?
      LT

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