Weekend Portfolio Analysis (May 30, 2015)

Good morning folks!
Today I'm writing to you from the Southernmost point of continental USA: Key West ladies and gentlemen:

It's a weird sensation when I feel that I'm much closer to Havana than Miami right now. Yes, Cuba is closer to me while writing this piece from my bed. Just 90 miles away whereas Miami is 140 miles from here.

But this is not a site about tourism. This is not TripAdvisor. This is not what you came looking for today. So, let's get down to it.

Weekend Portfolio Analysis (May 23, 2015)

A pretty boring week for me in the trading arena with the SPX opening the week at 2121.30 and closing it at 2126.06 for a 0.2% gain. Year to date the index is now up 3.26%.

The fact that the S&P closed the week barely unchanged is not the issue, after all it could have done it with huge swings both ways. The issue is that it oscillated between 2120 and 2134 all week. Unbelievable. But, as I have said before: "Embrace boredom". As an options seller, it is not so good to open trades when the markets are boring, right before the storm. You would rather open your positions in tumultuous times. But, once your positions have been established, boredom in the markets is the best thing that can happen to you, so you fully burn all that Theta while you sleep well at night and happily dream about little angels.

July 2015 SPX unbalanced Iron Condor

Today I entered the first position of the July 2015 monthly options expiration cycle.

I finally got filled with the 1935/1940/2220/2225 unbalanced Iron Condor. This was after trying my luck with RUT 1110/1120/1330/1340 and not getting filled for more than 30 minutes for the credit that I wanted. Then I went to SPX but trying a more conservative 1920/1925 Put side. In the end I had to split the order in two and enter the Call side and the Put side separately. The fills were really difficult today I must say, especially on the Put side. But, I always remind myself that I have to be patient. Order entry is one of the few things that you can control and if I am going to be doing this only a couple times a month, I better take my time and not rush anything.

Weekend Portfolio Analysis (May 16, 2015)

May expiration is in the books. The RUT 1100/1110/1330/1340 unbalanced Iron Condor finally expired and the Year to Date return of the portfolio is now +11.63%, which is +27.91% annualized. That's not bad for the little activity and the zero sleepless nights lived this year.

Below is the chart of the S&P500 index. Take a look at the gray rectangle:

(Click on image to enlarge)

That gray rectangle describes the range of boredom in which we have been trapped for three and a half months. Since February 4, until today the SPX has oscillated between 2040 and 2125. An 85 point range or about 4%. But it gets even worse. In the last 40 something days we have been trapped in an even narrower 2% range of tedium.

An Investment in Canadian National Railway Company - CNR

If we're trying to avoid wild wild west, cow-boy style investing, one of the ways of doing so responsibly is by putting your money for the long run in mature, proven and stable businesses. One of the tenets often mentioned is the company's "moat". "You want to invest in companies with a moat". In other words, you want to invest in companies with a distinctive built-in competitive advantage where the barrier of entry for new competitors is a huge obstacle to overcome.

Railways fall in this category. Building a whole infrastructure across vast regions takes billions of dollars and years of work, so, the established companies, the incumbents, pretty much have guaranteed business for years to come without too much concern about potential new competitors. Goods always need to be transported from manufacturers to consumers and railways are still, to this day, the most cost efficient way for transporting them in large volumes throughout large distances. Better than Planes and Trucks by far.

Weekend Portfolio Analysis (May 9, 2015)

Oh là là! That's a phrase French speaking people use to express surprise, among other things. Learn how to pronounce it via Youtube. I say Oh là là to this market! Markets are always hard to trade, markets are always in Oh là là mode. How many of you (us?) were expecting a rebound on Thursday and Friday? It's always the same. It's always the same and it will continue to be like that. The fear of the next major market crash is always looming and the inevitable "Recency Bias" impregnated in the herd mentality, the tendency that people have to believe that what has been recently happening will continue to happen. You know like when Gurus on CNBC ALWAYS say "I think there is more to come" both during rallies and market sell offs. That's recency bias.

Getting ready to defend. No reason to panic.

With the recent sell off in the RUT index it is a good time to reflect upon our strategy in order to better understand it. Only a solid understanding of its potential and weaknesses will make us feel truly confident in what we are doing.

This is the business of selling options. You know, where you have a lot of winners for a while until "that day happens" when you lose it all. That's what happens to most options sellers and that's why you sometimes cannot avoid that feeling,......the dread,.....the terror,...the what ifs. So, here I am and hopefully with this analysis I can shed some light on how all these positions can be managed conservatively in order to minimize damages and what's more interesting, in order to be able to quantify them way in advance. Knowing the magnitude of your losses in advance kills the panic, because you simply know how bad it can get, unlike the trader who doesn't know what the magnitude of his losses will be by the time his position needs to be adjusted and therefore gets nervous and makes regrettable decisions with his capital.

Weekend Portfolio Analysis (May 2, 2015)

Phewww, that was an exciting week with nice moves both ways on Thursday and Friday. I took it easy and didn't add new positions to the portfolio as not all the stars were aligned for me, a.k.a my system didn't trigger any trade signals. In the end we went from 2119.29 down to 2108.29 for a  0.52% decline. The index is now up 2.40% for the year.

There was a nice decline on Thursday, especially on the Russell index which some people took advantage of. I was asked by a couple of folks why I wasn't selling Puts that day. Well, basically the market was not at the oversold extreme I look for. If you sold Puts that day, things are working beautifully for you my friend. Congrats. Personally, I didn't want to sell Puts when my system was telling me that I should wait just a little longer and I-don't-regret-it. Some people would rather sell options than have sex and I understand. Selling options is fun, it is addictive, highly addictive (like this mundane blog), but a plan is a plan and I didn't want to be like a deer caught in the headlights later.