Today I'm writing to you from the Southernmost point of continental USA: Key West ladies and gentlemen:
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.
The SPX Index went from 2130.36 to 2107.39 for a -1.08% week. Year to date the market is up only 2.36% almost half way through the year. The life of a buy and holder is tough.
This week I made no trades as the market continues in no man's land giving no attractive opportunities for Credit spreads. I will continue to ride my two Iron Condors as long as the market stays trapped in this narrow range that we're in.
(Click on image to enlarge)
McClellan: -105 (neutral)
Number of stocks above their 20 Day Moving Average: 44% (neutral)
With a no man's land condition I won't sell individual credit spreads on one side of the market. There is just too much room for the markets to go in either direction. For selling Puts I would wait for a 2% decline, so 2070 or so. Selling Credit Call spreads on the other hand is not attractive to me here either. For the same reason: this market can explode to the upside. Don't let recency bias cloud your judgement, yes the market hasn't looked too strong lately, but for some reason bears haven't been able to move it lower either. So, this market deserves some credit. I need a 2 - 2.5% rally here before I start considering Credit Call spreads.
RUT 1130/1140/1340/1350 unbalanced Iron Condor
3 weeks to expiration. 94% probability of success. This has been a well behaved kid. I'll just ride it all the way to exp. I see no concerns on the horizon here. Strike prices looking very safe with RUT priced at 1246.
SPX 1935/1940/2220/2225 unbalanced Iron Condor
Looking good 78% probability of success, 7 weeks to expiration. SPX is sitting at 2107.39 so this position feels very comfortable to me.
Action plan for the week
I won't need to touch my Iron Condors this week. I estimate that the RUT June Iron Condor will be threatened if RUT hits either 1180 or 1325. By that I mean, if RUT goes down to 1180, the Put side of the Iron Condor will reach 30% probability and it will therefore be in need for an adjustment. I think it is unlikely for RUT to lose 66 points (from 1246 down to 1180) in just a week as it represents a 5.3% fall. On the way up I also don't see RUT reaching 1325, or a +6.3% gain in a week.
Looking at the July SPX 1935/1940/2220/2225 Iron Condor, my estimated adjustment points are 2020 and 2180, that's where the Put side and the Call side would reach 30% probability respectively. I think those numbers are unlikely for a week: a 4.1% fall or a 3.5% rally.
As for new offensive moves, again I need to see the market decline or rally, in order for me to act after the fact. I say, SPX 2070 will get me interested in selling Puts and SPX 2160 is the number I need in order to start evaluating out of the money Credit Call spreads. If neither one of those numbers is reached it will be bad for my offensive game as I won't put more money to work, but it will be great for my defensive game, as my existing positions will keep peacefully burning that time premium in my favor without a market moving violently.
There is some potential for good moves this week. Lots of important entries in the Economic Calendar, including unemployment numbers, GDPs etc. The market picture next weekend could be totally different from what we are seeing today. Here's the list of the most important events:
Sunday: China's Manufacturing PMI
Monday: German PMI, US ISM Manufacturing PMI
Tuesday: Europe's CPI and Germany's unemployment
Wednesday: ADP Non-farm payrolls, ISM Non-manufacturing PMI
Friday: Europe's GDP. US Non-farm Payrolls, US Unemployment numbers.
I'm out, but not without leaving you with a picture of the southernmost house in the US first. I love Key West. Highly recommended for relaxation.
Take it easy folks!
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