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BookingAlpha Option Trading Advisory

Saturday, February 14, 2015

Weekend Portfolio Analysis (February 14, 2015)

The S&P500 opened the week at 2053.47 and closed at 2096.99 for a solid +2.12%. We're now back to the kind of really challenging environment for option sellers of low volatility and Credit Call positions hammering traders' accounts out there. As we have learned in the last two years, this is the type of environment where you have to be specially conservative and selective with your plays. We'll see how we manage to survive over here.

Market Conditions
(Click on image to enlarge)
Stochastics: 98 (overbought)
McClellan: +100 (neutral)
Stocks above their 20 Day Moving Average: 71% (overbought)

Ok, we're close to a short term overbought extreme. The starts are aligning and only the McClellan oscillator is signalling some breathing room left. Of course, as we have all seen in the past, the market can remain overbought indefinitely. 2100 seems to simply be a matter of time, but for this week in particular I see 2120 as the top.

These circumstances merit extra caution. I will not sell Credit Put spreads under these circumstances and only Credit Call spreads if an overbought extreme is reached.

February positions
SPX 1875/1880/2190/2195 Iron Condor
98% probability of success. Will expire worthless this week. Good trade. Easy to ride.

March positions
SPX 1845/1850/2170/2175 unbalanced Iron Condor
33 days to expiration and 77% probability of success. No concerns on the Put side. The Call side  also looking safe so far.

Action plan for the week
The February Iron Condor will expire and yield max profit. The YTD return for the portfolio will go up to +4.16%. Not spectacular, but on pace to a 24%-25% annualized return with very little effort which is nice.

As for the March unbalanced Iron Condor, price is obviously closer to the Call side than the Put side. However, in order for the 2170 short Call to reach 30% probability of being in the money, the SPX would have to go to about 2140 this week. That would put the price of the index close to 5% above its 50 Day Moving Average which is a very rare event. In fact I don't think that has happened in the 5 years I have been blogging. So, I don't see myself adjusting that Call side this week.

As for new trades, well, the April expiration cycle will be 8 weeks away on Friday. I'm still not sure about what I will do because it depends on whether the market reaches an overbought extreme or not. For now, my candidate play would be the SPX April 1840/1845/2205/2210 Iron Condor. As usual, I want .80 credit or better. But if the market rallies and we reach an overbought extreme, I may go with a 2220/2225 Credit Call spread only.

If the overbought extreme is reached before Friday, I will enter a March RUT 1300/1310 Credit Call spread. I'm still attracted to that position, but I need 1.00 credit or better, otherwise I'll let it pass.

Economic Calendar
Short trading week with the American markets closed on Monday.

Wednesday: Building Permits, PPI, Housing Starts.
Thursday: German Manufacturing PMI & Services PMI. US Philly Fed Manufacturing Index.

Good luck this week!

Check out 2015 Track record

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1 comment:

  1. We are close to being overbought on SPX and RUT. I might sell April SPX 2225/2235 ccs next week if we pop above 2100. If RUT becomes overbought (1240), I would like to sell April RUT 1350/1360 ccs. I have not sold any ccs on RUT and SPX in 2015. Next week might be the first time.

    My only remaining RUT cps position is very profitable and very safe at this time. I hope to close it next week if RUT continues higher.

    What I did last week:

    Last week, I closed the Mar SPX 1720/1710 cps for .10 debit. I got in this position on January 5th, 2015 for .60 credit. Profit is .50. This was a easy profit in less than 40 days.

    Plans for this week:

    1. Sell ccs if I get an overbought signal on SPX and/or RUT.
    2. Close the remaining Mar 31st RUT 1000/990 cps for .10 debit if RUT continues to move higher.

    Current Position:

    Mar 31st RUT 1000/990 cps

    You can follow me on Twitter @lienjonathan where I tweet my high probability credit spread trades in real-time for free. You can like my Facebook page and see all my open and closed trades and track record below.