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Saturday, March 14, 2015

Weekend Portfolio Analysis (March 14, 2015)

All right folks, we went from 2072.25 to 2053.40 for a 0.92% loss and the SPX index is now -0.27% year to date, to the frustration of index investors (they deserve it, they've been kicking our butts in the last couple years). This was a pretty exciting week where we reached a short term oversold extreme. I took advantage of the opportunity and sold an SPX 1970/1965 Credit Put spread with March expiration. I was a little early with my entry and had to endure some pressure the next day when the market fell a little bit more but things are looking great now. The market would have to experience a drastic fall in order to affect my position.

Market conditions
(Click on image to enlarge)
Stochastics: 18 (oversold)
McClellan: -60 (neutral)
Stocks above their 20 Day Moving Average: 43% (neutral)

The short term oversold conditions were slightly relieved, however the market is still close to a short term extreme which could be achieved with a fall down to 2020-2030. McClellan is the one showing plenty of downside room, more so than the 43% of stocks above their 20 DMA. There are a couple of good things for those that sold Puts this week. First, there doesn't seem to be much panic out there, or else Friday's bar would have been an elephant bar (personal term I use to describe larger bars that are more than 90% body and close near their lows). Second, we have the FOMC minutes on Wednesday, and lately Mondays and Tuesdays have had a tendency to be slow (little activity) prior to a Federal Reserve meeting. This may provide some more time decay to finally be able to close any ill timed Credit Put spread. I tried to close mine for 0.05 debit on Friday morning but the market makers didn't want to bite,....and I didn't want to pay 0.10. Then the market started to fall and I simply couldn't close my spread.


March positions
SPX 1845/1850/2170/2175 unbalanced Iron Condor
Nice trade. Will expire worthless for max profit this week.

SPX 1965/1970 Credit Put Spread
Showing a 97% probability of success. There really is no reason to panic here, particularly early in the week. I would like to close it early for 0.05 debit, but if the market rallies early in the week, I'll have no issue going into the FOMC meeting with this position on and then I may hold it all the way through. We'll see. The position really is not looking bad and it will expire in a week.

April positions
SPX 1855/1860/2200/2205 unbalanced Iron Condor
5 weeks to expiration and 89% probability of success. This one's looking great like the wife I never had. No complaints.


Action plan for the week
The unbalanced Iron Condors will not need adjustments. The March one will expire for max profit.

I'd like to close SPX 1965/1970 Credit Put spread for 0.05 debit early in the week. If I see the market rallying hard on Monday or Tuesday, I won't do it and will hold to expiration. If this spread is a winner, alone with the March Iron Condor the performance of the portfolio will go up to +7.36% by the end of the week once those positions expire. If on the other hand the Credit Put spread needs an adjustment, which I believe is unlikely, I will end up the month of March flat, without a negative balance thanks to my strict risk management plan of never allowing price penetrate the short strike prices of my positions in order to contain the damages early. In this case, the YTD performance of the portfolio would remain around the same 4.16%. How do I know I would end the month flat? Well, the 1965/1970 put spread would need 1.10 debit to close when it reaches 30% probability of in the money. That'd be $440 in the model portfolio. But, I would deploy capital farther out for 0.30 credit (5 contracts per leg). As a result I would have obtained the following credits in the month $220 for unbalanced Iron Condor + $120 for the Credit Put spread + $150 for new hypothetically deployed Credit Put spread after the adjustment. That's a total of $490 credit received in the month for the model portfolio, against a $440 debit for defending my threatened credit put spread. So, it's all good.

Finally, on Friday we will be 8 weeks away from the May expiration cycle. Time to start looking at possible candidates. As things are looking right now I wouldn't go with an Iron Condor because the Call side would be dangerous. Right now the SPX 1805/1810 Credit Put spread for 0.30 credit looks like a decent proposition. But for some reason I have a feeling that come Friday things will be a lot different this time and I may end up doing something totally different. I would like an Iron Condor, but I need a little rally for that. I would also consider a RUT 1080/1090/1330/1340 Iron Condor or similar. But preferably with the Call side not below 1330.

Note: Hey, if you enjoy this style of Options Trading, you may also enjoy the insight of three other trading comrades that I have found over time on the cyber space and make my life less lonely:

Jonathan
Twitter: @lienjonathan
Site: Create Monthly Income Fund
Clever trader. Conservative. Years of experience with Credit Spreads and Iron Condors. His trading is pretty much mechanical based on entry rules he has back-tested to 1990.

Aram
Twitter: @abasmadjian
Site: Trade with Aram
Options premium seller. He is more active and doesn't limit his activity to only Indexes. He's kicking our butts with his performance so far this year. Good luck to him.

Bellini Markets
Twitter: @bellinimarkets
Site: Trade for a Living
We don't know why the hell he blogs about the markets in Spanish. But that's his right, what are you gonna do. As a native Spanish speaker I find his posts useful and also very entertaining. On Twitter, he combines both English and Spanish.

All these folks share their trades. They are relatively new in the blog-sphere and I don't want them to disappear. I have seen so many trading blogs vanish over time. Blogging is very discouraging at the beginning with little traffic, barely any comments on the articles etc. So, I want to do everything in my hands to motivate them.


Forex
The LT Trend Sniper continues to have a spectacular year in the back of a solid +22% in 2014. This time the second position of the year has not disappointed. The Sniper went short EURUSD on February 27 at 1.11972 and the Euro has already fallen below 1.0500 for almost 700 pips of profit.

(Click on image to enlarge)
This trade alone is bringing a gain of +12.47% to the portfolio which is up +24.77% for the year. Of course these numbers are not locked until the position is closed.

(Click on image to enlarge)
This is all using a conservative approach. My current risk settings are targeting a mundane 9% yearly return with less than 10% draw-downs. So, there is no cow-boy reckless trading here. It's just that the trends in the Euro lately have been memorable and the robot will simply ride them. There should be 4 more positions in the year according to the historical behavior of the robot and I expect to have a couple of losers in them, but because we don't know which one will be, we have to trade all the signals. For now, because of the way it cuts losses, it is a certainty that the robot will have a positive year even it losses all 4 remaining trades of 2015.

For live progress updates of this position you can always visit
http://www.myfxbook.com/members/thelazytrader/lt-trend-sniper/1149379

If you are interested in acquiring the LT Trend Sniper system, visit LT Trend Sniper - a forex strategy that works.

I've seen a lot of people on the Internet losing money against this trend or that of the Sterling Pound (GBPUSD) and complaining on Twitter. That didn't need to happen. People tend to over complicate things and it's pretty simple actually, which took me years to understand. On the spot Forex, there is no implied volatility edge, or time decay factor. All the money is made purely from market direction. So, you truly have to apply the old adage of cut losses and let winners run. Here's what you do, for all Fibonacci, Elliott Waves terrorists scalpers of the Euro out there. You simply stop trying to look too smart being a contrarian. You close all the 5 minute charts, the 15 minute charts and all that crap. You remove all the indicators, all of them and you open a chart on the daily timeframe, and you observe: "has price been going down in the last month?" then you short. "Is price going up?" then you buy. That's all! It really is that simple in Forex. Especially on the daily timeframe you have to be very unlucky to buy at the exact top or sell at the exact bottom, and if you do you send me an email at traderlazy@gmail.com and I'll send you a gift as a prize for your uniqueness. It will be an honor to meet such a unique individual. If you are looking for 10 - 20 pips profits, as most Forex retail traders out there seem to be, this basic, absurd approach will give you those 10 pips without problem.


Economic Calendar
Tuesday: European CPI, German Economic Sentiment, US Building Permits and Housing Starts
Wednesday: Chinese Industrial Production.
Thursday: Philly Fed Manufacturing Index

Good luck this week folks!

Check out 2015 Track record


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

9 comments:

  1. LT, Thanks for mentioning me in this week's post! It is indeed an honor! You truly are an inspiration!!!

    ReplyDelete
  2. LT - you are truly showing that patience is a virtue in the markets. Like your discipline. I need to start selling some cps myself.

    ReplyDelete
  3. Open positions
    IC SPX Apr 1850/1870/2200/2220
    IC RUT Apr 1050/1070/1320/1340
    CAL RUT Apr/May 1230 call


    Last week
    We had a few out-of-one sigma moves in SPX and RUT last week. Despite the volatility, I did not have to adjust any of my open positions.


    Next week
    The April RUT IC is almost at the profit target (3/4 of initial credit). I have entered a LMT GTC order to buy to close this position. I don't think I will be able to close the April SPX IC at the profit target this week yet. Adjustment points for Apr RUT CAL are around 1195 and 1265. I want to sell to open two new SPX and RUT ICs in May expiration. To diversify, I will open the first one at the beginning of next week and the second one at the end.

    ReplyDelete
    Replies
    1. Hi Martin,

      I like your positions. Why are you selling 20-wide spreads instead of the standard 10-wide or 5-wide? Just curious.

      Delete
    2. Holly Doritos!!! What the hell is an "out-of-one sigma move"?
      Thanks for leaving your comments
      LT

      Delete
    3. "Why are you selling 20-wide spreads instead of the standard 10-wide or 5-wide? Just curious."

      Hello Jonathan,

      The reason is simply to cut down on commission fees. The typical size of my IC is $8000 (RegT margin). With 20-wide spreads, I pay commissions for 32 option contracts (16 in + 16 out). With 10-wide spreads, I would pay fees for 64 option contracts (32 in + 32 out).

      ===

      "What the hell is an "out-of-one sigma move"?"

      Hello LT,

      By sigma I meant the standard deviation of price movement. In theory, price moves outside one sigma once in three days (32% probability) and price moves outside 2 sigma once in twenty days (5% probability). For example, with RUT @1232 and RVX @18, the sigma is 11 points: the market expects that RUT will stay between 1221 and 1243 tomorrow.

      I use the standard deviation to tell me how closely I should watch the market the next day: When all my adjustment points are outside 2 sigma, then I usually check the market at the open and then I can go out with my friends and enjoy the life (I live in Europe, so US markets close at 10pm for us). But when there is an adjustment point within 1 sigma, I monitor the market hour by hour, because it is very likely that I will need to re-adjust my open positions.

      Martin

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    4. Got it.
      Thanks a lot for the detailed explanation man.
      LT

      Delete
  4. Hi LT,

    Thanks for the mention! It is great to be able to find like-minded traders like yourself who are also learning how to trade credit spreads successfully. I have learned so much from you as a long-time follower of your blog.

    What I did last week:

    Last Tuesday, we had an oversold condition on SPX. I took advantage of this oversold condition to deploy a May 31st SPX 1775/1765 credit put spread for .60 credit.

    What I plan to do this week:

    There is not much to do unless we have an oversold condition on RUT. All my positions are very safe at the moment. If we had lower next week, I might close the call side of the June 30th 2275/2300 cps.

    Below are my current positions:

    May 31st SPX 1775/1765 cps
    June 30th RUT 1000/990 & 1380/1390 iron condor
    June 30th SPX 1750/1725 & 2275/2300 iron condor

    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.

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

    https://docs.google.com/spreadsheets/d/1xpG88wxQeoAKyIik3OKhbxbS3qInINGaa4Boxzp5HEY/edit?usp=sharing

    ReplyDelete
  5. Hi LT thank you for your mention!!!

    I'm learning a lot with your blog and also Jonathans and Aram trades are helping me.

    Hope to maintain the activity an interection with all of you guys.

    With this cycle end my portfolio will be 2.833% up before commissions.

    My positions

    Mar RUT 1300/1310 970/980 IC
    Apr RUT 1330/1340 1100/1110 IC
    Apr SPX 1850/1840 Credit PUT SPREAD

    @bellinimarkets

    ReplyDelete