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Saturday, April 11, 2015

Weekend Portfolio Analysis (April 11, 2015)

Good morning folks! How's it going? How are the markets treating you?
All is going well over here in LazyTradingLand. The market has been benevolent so far in 2015 without keeping sustained violent moves in the same direction. This is great because if you are conservative you haven't felt its heat yet. I haven't had losing trades this year and I have basically traded stress free. I'm not showing off my awesome abilities. The market has simply behaved in a way that easily accommodates our trading strategy. It will eventually get ugly again, we just don't know exactly when. So, let's enjoy the party, the orgy of capital easily flowing into our accounts.

Market conditions
The SPX Index went from 2064.87 to 2102.06 for a +1.8% gain. The index is now up 2.10% for the year.

(Click on image to enlarge)
Stochastics: 91 (overbought)
McClellan: +71 (neutral)
Stocks above their 20 Day Moving Average:  62% (neutral)

Still no man's land. Because the market has been going up and down without sustained convincing moves, we have had very few instances of short term extremes this year. Well, no man's land again this weekend for our viewing pleasure. Although certainly closer to an overbought extreme than to an oversold one. 2% higher from here, around SPX 2140 would be a good time for selling Calls. One thing that caught my attention was the fact that even though the market went up 1.8% this week the number of stocks trading above their 20 Day Moving Average went from 64% down to 62%. Funny bearish divergence right there. To sum up, not a good time for selling credit spreads. I'll keep waiting. Patiently, like the cheetah waiting for its injured calf.


April positions
SPX 1855/1860/2200/2205 unbalanced Iron Condor
1 week to expiration and 99% probability of success. It will expire worthless this week. This is the only April position and the year to date performance of the portfolio (after trading costs) will be +9.44% by this time next week. Nice for the small amount of work we have done this year.

May positions
RUT 1100/1110/1330/1340 unbalanced Iron Condor
5 weeks to expiration, 86% probability of success. No sweat here. No threats in the short term horizon.


Action plan for the week
None of the existing positions will be threatened this week. The April one will expire yielding max profit.

As for new trades, I'm not done with the May expiration cycle. If we reach a market extreme I will default to May options for a credit spread against the prevailing trend. I still like the idea of a May 2210/2215 Credit Call spread for 0.50 credit or better. But for that I need for SPX to go up to about 2140. A short term oversold extreme is farther and I believe it is unlikely to be reached in a week.

As for June positions, we're still too far for my liking. I will enter the first June position in around two weeks.


Forex
When it looked like the Euro was consistently on its way to recovery, it rained shit in Europe again. The Euro posted massive losses this week, shedding almost 5 cents vs the American Greenback.

(Click on image to enlarge)
If that support around 1.0500 is broken, my infamous LT Trend Sniper will enter a short Euro position. It will be its third trade of the year. The robot is up +17.52% year to date, independently verified by MyFxBook here.

Economic Calendar
Sunday: China's Trade Balance
Tuesday: US Retail Sales and PPI. China's GDP and Industrial Production.
Thursday: US Housing starts and Building Permits. Philly Fed Index.
Friday: European and American CPI numbers. Michigan Consumer Sentiment

Good luck this week folks!
You can follow me on Twitter: @lazytrading

Check out 2015 Track record



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11 comments:

  1. The market in 2015 has been pretty easy and stress-free for conservative credit spread sellers. It doesn’t get any better than this.

    I did not make any trades last week as we are currently in no man’s land. All current positions are profitable and safe. I am waiting for an overbought or oversold signal to make another trade.

    My current positions:

    SPX May 31st 1775/1765 credit put spread
    RUT June 30th 1000/990 & 1380/1390 iron condor
    SPX June 30th 1750/1725 credit put spread

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  2. Last week:
    Yet another quiet week when I just watched the theta/time decay of my credit spreads. Neither of my iron condors got into trouble or reached the profit target. So I was a lazy trader this week. I agree with Henrik: this range bound price action can not go for ever. There will come a time when the market will make a violent move in order to test our ability to manage credit spreads.

    Open positions:
    4x IC SPX May 1860/1880/2190/2210
    4x IC RUT May 1070/1090/1330/1350

    Next week:
    Both positions look good. If the market is nice and quiet next week at least one of them might hit the profit target (I will enter buy limit orders on Monday). Otherwise, I will watch them in case the market moves sharply one way or the other: adjustment potions are roughly (1980;2140) for the SPX iron condor and (1160;1290) for the RUT iron condor.

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    Replies
    1. Hi Martin,

      What is your profit target? What are your adjustment rules?

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    2. Hello Jonathan,

      Profit target: I shoot for 75% of received credit (e.g. when I sell a 20 wide iron condor for 2.60, I am willing to buy it back for 0.65). The reason is that I try to maximize the profit while giving the market less time to hurt my open positions. I observed that when I sell credit spreads about 60 days before expiration and no adjustment is made, I am able to get 75% of max profit in about 30 days. I don't want to wait another 30 days to get the remaining 25%. I prefer to sacrifice the 25% of max profit by buying back the position and opening a new iron condor in the following month that has a better time decay.

      Adjustments: There are three types of adjustments.
      (i) Mickey mouse ear - I buy a debit spread to cut the position delta by half to reduce the loss if market keeps moving futher. This creates a Mickey mouse ear on the expiration graph (e.g. assuming SPX May 2190/2210 call credit spread, I would buy SPX May 2170/2190 call debit spread). I use this adjustment when the delta of sold options reaches 22 or when the price of sold credit spread doubles or when open loss is about -5%.
      (ii) Rolling - I roll the spreads futher from the money by closing the threatened spreads and opening new ones at delta 10-15 (I may increase the size of new spreads). I use this adjustment when the delta of sold options reaches around 30 or when the price of sold credit spreads triples or when open loss is over 10%.
      (iii) Exit with loss - in this case the has market moved too much. I just close the whole position. I exit the position when the option loss is around 15%. (I broke this rule last October and November and took some beating from the market).

      I will try to post my yearly trading results next weekend.

      Martin

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    3. Thanks for the detailed explanation. How many debit spreads would you buy if you sold 4 contracts?

      Do you always sell an iron condor around 60 days until expiration?

      Delete
    4. Thanks a lot for sharing all the details of your trading style Martin.
      I really appreciated.
      It's always interesting to see how others go about their craft.
      LT

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    5. Hi Jonathan,

      > How many debit spreads would you buy if you sold 4 contracts?
      It is usually 1 debit spread per 4 credit spreads. The goal is to cut position delta by half. I am willing to pay for this protection up to 50% of received credit (e.g. if I initally sell the iron condor consisting of 4 contracts for $1000, I may pay for the debit spread around $350-$400 (but it depends on the number of days to expiration).

      > Do you always sell an iron condor around 60 days until expiration?
      I sell iron condors in RUT and SPX between 60-56 days to expiration (usually one on Monday and the other Thuersday/Friday to diversify). Unless it's a part of an adjustment, I don't like selling new credit spreads with less than 50 to expiration (if the price moves against the postion, there is not much time left and I have to roll credit spreads pretty close to the current price to get a decent credit).

      Martin.

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    6. Hi LT,

      > Thanks a lot for sharing all the details of your trading style Martin.
      I also appreciate that you share your trades with others. I usually learn the most from those who actually trade with real money. That's why I decided to post a short summary of my trading on a weekly basis. Let's see how it goes.

      Martin

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    7. Hi Martin,

      I like your adjustment plan. Do you take into account whether the market is oversold or overbought before you sell an iron condor? If the market is oversold, I prefer to sell only the put spreads and wait for the market to become overbought before selling the call spread. How long have you been selling iron condor this way?

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    8. Hi Jonathan,

      > Do you take into account whether the market is oversold or overbought before you sell an iron condor?
      I use Bollinger Bands (20,2) to give me some idea if the market is overbought or oversold. But the BB indicator is not perfect: when the volatility is low BB is pretty narrow and the price can easily cross the upper/lower BB without being truly extended. Anyway, I balance iron condors using BB as follows:
      When the price is around the middle of BB, I sell a balanced iron condor (the same number of put and call credit spreads).
      When the price is in the upper part of BB, I sell a higher number of call spreads vs put spreads.
      When the price is in the lower part of BB, I sell higher number of put spreads vs. call spreads.

      > I prefer to sell only the put spreads and wait for the market to become overbought before selling the call spread.
      I like having fairly delta neutral positions. I don't sell only the put or call spreads unless the market makes me by running over my existing positions. Example, let's say that RUT exceeds 1300 in the next couple of days forcing me to roll over my existing RUT May 1330/1350 call spreads. In this case, I will be willing to sell only call spreads in the June expiration month, because I think that RUT would be pretty extended to the upside at that point.

      > How long have you been selling iron condor this way?
      I have been trading options since 2012; mainly naked puts on stocks, calendars and iron condors on stock indices. I started trading iron condors more regularly in 2014. The iron condor strategy that I am writing about here is still a work in progress.

      Martin

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    9. Thank you Martin. Be careful with selling an iron condor at market extremes. Please keep us posted on your progress.

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