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Saturday, May 16, 2015

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.

How are we supposed to say something different in the Weekend Analysis when the market has not given us anything different for months? How can we even tweet new things anymore and still look smart? I don't really know how people do it. Seriously, there is not much new to say.

I'll do something different this week in order to gauge Sentiment out there. With the markets in all time high territory, you would expect to see bullishness at its highest. Surprisingly that is not what we have out there.

NAAIM Exposure Index (from the National Association of Active Investment Managers)

The number came out at 60.38 this week. That's a neutral reading. However, it was showing extreme bullishness as recently as April 29 (only 17 days ago) when it came out at an extreme 90.6. So, the markets are again at all time highs, yet money managers have reduced exposure and don't feel nearly as optimistic as two weeks ago.

Now, remember that the smart money is not so smart in the end, because everybody under-performs anyways. So, I look at this number from time to time and anything above 85 to me means extreme optimism (usually after the market has gone up too much too fast). Anything below 15 or so to me means extreme pessimism. So, I tend to adopt a contrarian approach in both cases. But for today, the point is, there is no extreme optimism anymore.

AAII Survey (from the American Association of Individual Investors)
Again, the idea here is to adopt a contrarian stance at extremes. When the bears start to move above 40% it means there is too much pessimism, which is usually a leading indicator for market rallies. Now, both bulls and bears are way below their historical averages of 39% and 30% respectively and EVERYBODY is adopting a Neutral stance at this point. This week Bullish sentiment went down another 0.3% and Bearish down another 0.5%.

Folks, with these sentiment numbers it is clear that we are not at extreme levels in this market. The market has a funny way to hurt traders and investors when they least expect it, and because so many people have recently turned bearish or neutral already, it is hard to think that we will experience a significant correction right away. There could be more gasoline, until new extreme optimism levels are reached again. That's in terms of Sentiment.

Now in terms of technical readings:
Stochastics: 84 (overbought)
McClellan: +38 (neutral)
Stocks above their 20 Day Moving Average: 51% (neutral)

Folks, what else can I say? Lots of indecision. On top of that the VIX has taken a plunge to 12.38 which contradicts my previous analysis, as traders believe it should spike soon, which would obviously mean the market falls. Selling options is not attractive at this point, at least not individual Credit Spreads on one side of the market. For individual Credit Put spreads or Credit Call spreads, I will wait for the explosion first. I will wait for the extreme move to take place first. Then I will attack. So, what do we do in the mean time? Well, we sell on both sides! So that the credit form one side helps the credit from the other one in case one of them is eventually threatened. But we do it small, because volatility is low and positions are not attractive now. We continue playing because nobody knows when volatility will go up. We could spend months with the VIX below 15, as it happened in 2013 and in 2014, so we will continue to sell options. We'll just keep it small.

June positions
RUT 1130/1140/1340/1350 unbalanced Iron Condor
5 weeks to expiration. Looking great with an 89% probability of success. No sweat.

Action plan for the week
We're in offensive mode as there is nothing threatened, noting to defend. Only one position on and lots of capital on the sidelines. Obviously no individual credit spreads until we see a short term extreme market. Other than that, we will be 8 weeks away from July expiration come Friday. Because we are far from an extreme, it looks like I will start playing the July cycle, yes you guessed it, with an Iron Condor once again.

My candidates right now are:
July RUT 1100/1110/1320/1330 Iron Condor
July SPX 1905/1910/2215/2220 Iron Condor

As always, the markets will move and I will play something slightly different in the end, but that's the original idea. One of those two. With those strike prices I would play them unbalanced (reduced exposure on the Call side). For me to sell the full versions I need to see the RUT 1340 strike price reach 10 deltas, and same thing for the SPX 2240 strike price.

The LT Trend Sniper robot will buy the Euro tomorrow (Sunday) at the open. This will be the third trade of the year and first bullish one on the Euro currency. For constant updates you can always check out this link where the position balance is verified and refreshed by an independent third party every 5 minutes.

Economic Calendar
Tuesday: Europe CPI, German Economic ZEW Sentiment. US Building Permits and Housing Starts
Wednesday: FOMC Minutes. China's Manufacturing PMI
Thursday: German Manufacturing PMI, US Existing Home Sales and Philly Fed Index
Friday: German GDP and Business Climate Index. Europe's PMI. US Core CPI

Good luck this week my friends!

Check out 2015 Track record

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  1. You have a typo: July RUT 1000/1110/1320/1330 Iron Condor

    Last week I closed a few winning positions and opened a couple new iron condors. I don't expect to make any trades next week unless we have an overbought or oversold market.

    Current positions:

    RUT July 17th 1050/1040 cps – currently profitable
    IWM August 21st 105/103 cps – currently showing a tiny loss
    SPX August 31st 1750/1725 & 2275/2300 iron condor – currently profitable
    RUT September 30th 1000/990 & 1380/1390 iron condor - currently showing a tiny loss
    SPX September 30th 1725/1700 & 2275/2300 iron condor - currently breakeven

    1. Thanks Jonathan.
      Indeed I meant 1100/1110/1320/1330. Fixed now.
      Thx for sharing your positions.

  2. Hello all

    Haven't got any CS filled yet, looking yet to complete IC on my outsatnding positions. Already cash my May SPX PS 1840/50.

    Outstanding positions are:

    RUT June 19th 1050/1060 cps @ 0.35
    SPX July 17th 1850/1860 cps @ 0.70
    RUT July 17th 1010/20 cps @ 0.35

    Wish you all a good week!!

    1. Thanks Bellini.
      Good positions man. Pretty safe.

  3. Last week:
    On Monday, I sold to open five iron condor spreads in SPX with 67 days till July exiration. I sold the spreads for 2.75. Total credit received $1375 with margin $8625. I opened the iron condors about nine weeks from the expiration which allowed me to sell strikes futher away from the current price of SPX. Following my portfolio management rules, I increased the size of this potision to five spreads (I allocate up to 20% of my account into a single position).

    Open positions:
    4x IC SPX June 1910/1930/2210/2230
    4x IC RUT June 1100/1120/1340/1360
    5x IC SPX July 1880/1900/2225/2245

    Next week:
    Both June positions are close to my profit target (75% of received credit). I will enter closing buy orders on Monday. Unless the market moves sharply one way or the other, I should be able to close at lest one of them next week. Also, with 60 days to July expiration, I am planning to sell iron condor spreads in RUT. In parallel, I will monitor open positions in case they need to be adjusted: (2040;2165) for IC SPX June; (1190;1290) for IC RUT June and (2020;2160) for IC SPX July.

    1. Thanks Martin,

      You have built some solid positions there. I like your call side (2225/2245) on the July Iron Condor. I've been thinking sometimes it is not so good to be 100% mechanical (As I am) about the 8 week to expiration thing, and instead open positions whenever I feel the strike prices are safer and happen to have 10% prob. In the Money.

      Thx for sharing your trading plan,