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Saturday, June 20, 2015

Weekend Portfolio Analysis (June 20, 2015)

The June 2015 monthly expiration cycle is now in the books. The RUT 1130/1140/1340/1350 unbalanced Iron Condor expired for maximum profit yesterday improving the performance of the overall portfolio to +13.82% year to date. This is a decent return half way through the year and represents +27.64% annualized. It remains to be seen whether I'll be able to repeat this performance on the second half of the year, but I'm confident I can perform decently with all the lessons learned throughout the years and thanks in part to the feedback of many like minded traders and readers of this blog. Meanwhile, the S&P500 Index is up only +2.48% year to date, so needless to say, I'm feeling happy with my trading so far in 2015.

Market Conditions
(Click on image to enlarge)
Stochastics: 75 (neutral)
McClellan: +1 (neutral)
Number of Stocks above their 20 Day Moving Average: 59% (neutral)

We're in no man's land this weekend. Price extremes have been really scarce this year, which is the direct cause for my passivity and smaller number of trades. Only 7 trades so far in the first 6 months of the year, for a projected total of 14 by the end of 2015. Way below my annual average. In the previous 3 years sharing my trades I have always made more than 40 trades per year. However, I must say I don't mind the smaller number of trades. I prefer to not force less than ideal entries that end up negatively impacting my returns. I've also come to enjoy this lower level of stress, much less concerned when fewer positions are in play, more cash is held in my account and keeping my commission costs very low.

Anyways, no man's land territory again. Not the ideal time for neither Credit Put spreads nor Credit Call spreads. It is however my sweet spot for long term Iron Condors, which I will talk about in the Action Plan for the Week section.


July positions
SPX 1935/1940/2220/2225 unbalanced Iron Condor
88% probability of success and 4 weeks to expiration. With SPX sitting at 2109.99 I am not concerned here. This has been a good trade so far and all indications are, it will expire for max profits in 4 weeks. Time will tell. This is the only position held in the account right now and I'm more than 80% in cash.


Action plan for the week
The July SPX 1935/1940/2220/2225 unbalanced Iron Condor will not reach adjustment points. I estimate that the Call side (2220) will reach 30% probability of being in the money during the week if the SPX index hits 2195. That's 85 points above current level (+4%) which is a very infrequent event. Now, on the way down, the 1940 Put could reach 30% probability if SPX falls down to around 2000 (110 points below current level or roughly 5.5%), another infrequent event. So, I don't anticipate having to touch this position.

As for new positions, by Friday we will be 8 weeks away from August expiration and I will look into adding my first August position during the next few days. So far my candidate is the RUT 1130/1140/1360/1370 Iron Condor, looking for 1.60 credit in total (0.60 credit on the Put side and 1.00 credit on the Call side, or 0.70 and 0.90 respectively). Now, what I'm not sure of is whether to play it unbalanced or not. What do you guys think? Should I play it unbalanced this time or fully balanced? It is a close call for me. If I were to sell the 1350/1360 Call side (10 points lower), instead of the 1360/1370, I would definitely play it unbalanced (half position size on the Calls in respect with the Puts), but with 1360/1370 I'm not 100% sure what I will do, as it is right there on the projected upper end of the trend line:

(Click on image to enlarge)
As I always say, my final position may differ as the markets will move away from the prices reflected today on this article, but that's roughly my plan.


Economic Calendar
Monday: US Existing Home Sales, China's Manufacturing PMI
Tuesday: Europe's PMI. US PMI, Durable Goods, New Home Sales
Wednesday: US GDP

Good luck this week my friends.

Check out 2015 Track record


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9 comments:

  1. Keep up the great work, LT! You're on a roll!!!

    ReplyDelete
    Replies
    1. Not as great a roll as yours! But thanks!! haha. I'm definitely enjoying how my trading style has evolved over time and how well it suits my lifestyle.

      Cheers,
      LT

      Delete
  2. I like your style of trading Henrik. Like you, I don't want to force any trades. I rather wait for the right opportunity to come along than to get into a less than ideal trade.

    What I did last week:

    Last Monday, I closed SPX August 31st 2275/2300 ccs for .25 debit. I opened on 4/14/15 for $1.50 credit. Profit is $1.25 in about 2 months. 1 to 3 months is my typical holding period for my 4 to 5 month iron condor trades. I don't like to hold it until expiration.

    Also Last Monday, I opened SPX October 30th 1750/1725 & 2275/2300 iron condor for $3.35 credit.

    Current positions:

    IWM August 21st 105/103 cps – currently profitable; will close for a debit of .02 in early July
    SPX August 31st 1750/1725 cps– currently profitable; will close for a debit of .25 in early July
    RUT September 30th 1000/990 & 1380/1390 iron condor - ccs is showing a small loss
    SPX September 30th 1725/1700 & 2275/2300 iron condor - currently profitable
    SPX October 30th 1725/1700 & 2275/2300 iron condor - ccs is showing a small loss

    My plans for next week:

    I will not make any trades unless we have an overbought or oversold condition.

    ReplyDelete
  3. Last week:
    On Monday, I sold iron condor spreads in SPX with August expiration. SPX (2075) was at the lower Bollinger Band indicating a minor oversold condition. I decided to open an unbalanced iron condor by selling more credit put spreads than credit call spreads. Specifically, I sold five SPX Aug 1830/1850 cps for 1.20 and four SPX Aug 2200/2220 ccs for 1.35. Total credit received $1140 with 67 days to go.

    On Wednesday, I closed all five SPX Jul 1880/1900 cps for $375 profit (originally sold for 1.20, this week bought back for 0.45). With $700 profit from the five SPX Jul 2225/2245 that I closed last week, the SPX Jul IC is my first +$1000 winner. Nice.

    On Thursday, I adjusted the RUT Jul 1100/1120/1320/1340 by buying a debit call spread. Couple of days ago, this position was up about 8%. With RUT shooting past 1270, the profit dropped to 3%. I didn't want to turn this winner into a loser. I decided to buy one RUT Jul 1300/1320 debit call spread to cut the position delta from -40 to -23. I paid for this spread $545 (thus reducing the max profit from 1561 to 1061). I lowered the profit target for this position to about 700.


    Open positions:
    5x RUT Jul 1100/1120/1320/1340 ics + 1x RUT Jul 1300/1320 dcs
    5x SPX Aug 1830/1850 cps + 4x SPX Aug 2200/2220 ccs


    Next week:
    I would like to open a new iron condor spreads early next week in RUT with August expiration. Unless the market gaps up or down on Monday, I am thinking about RUT Aug 1120/1140/1360/1370 for 2.80. With RUT at the upper side of the recent price range and the Bollinger Band, I will definitely go with a balanced iron condor. If I had to open an unbalanced iron condor, I would do the opposite of LT (I would sell more credit call spreads than credit put spreads).


    Good trading,
    Martin

    ReplyDelete
    Replies
    1. Thanks for sharing Martin. I have a few questions for you sir.

      1. If you knew we were slightly oversold, why not just sell the SPX Aug cps and wait for the market to go up before selling ccs?

      2. Can you please explain the rationale behind buying the RUT July debit call spread?

      3. Why not buy a 10-wide or a 5-wide debit call spread to reduce the cost?

      4. I believe you should have 6 contracts of the RUT July 1320?

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    2. Cool Martin, thanks for sharing your plan. Looks like you are confident in the small chance of RUT going up significantly. I've been thinking over the weekend that I tend to agree, so I will probably play it fully balanced.

      As for the close below the Bollinger band, I haven't seriously backtested this occurrence on the SPX, but in Forex when this happens, it is signal of strong continued down-moves instead of the traditional accepted approach that it will reverse to the mean, in fact I have programmed algorithms based on this simple entry rule and they show a positive edge. I will share one of them soon on the site, but again it is Forex, not the SPX or RUT indexes where things may be different. In any case just a warning and thanks for sharing your observation specially if it works for you as an options seller which is the most attractive of my speculative businesses.

      As for the debit Call spread, interesting, Jonathan I believe it is a similar strategy as yours, just not too sure when or if Martin would ever take profits early on that debit spread hedge or would just leave it there till the end. It would be interesting to know.

      Thanks Martin and thanks Jonathan

      LT

      Delete
    3. > 1. If you knew we were slightly oversold, why not just sell
      > the SPX Aug cps and wait for the market to go up before selling ccs?
      Because I am chicken and I don't like being purely directional by having only credit put spreads or credit call spreads. I considered the price of SPX @2075 to be reasonably extended to the downside, but I was not sure if the support around 2070 would hold. So instead of selling just cps, I sold five credit put spreads and four credit call spreads. This unbalanced iron condor was long enough for my taste.

      > 2. Can you please explain the rationale behind buying the RUT July debit call spread?
      I try to avoid large drawdowns. If the market moves against my position so that the open profit drops by 4%-5%, I will adjust the position to reduce further losses. This position showed 8% profit on June, 16th. Two days later, on June 18th, RUT moved up which lowered the open profit to 4%. I didn't want to turn this trade with a decent profit into a loser. That's why I decided to buy the RUT July 1300/1320 debit call spread even though the short RUT July 1320 calls had delta only 15. This adjustment cut the position delta from -40 to -23, so I basically slowed down further damage by half. The downside is that I had to pay for this spread which reduced the maximum profit (and position theta).

      > 3. Why not buy a 10-wide or a 5-wide debit call spread to reduce the cost?
      There is always a tradeoff. Yes, 10-wide or 5-wide costs less, but these spreads have smaller delta compared to a 20-wide spread. When my positions get into trouble, I tried to cut the total position delta by at least half (that's what the 20-wide did for me).

      > 4. I believe you should have 6 contracts of the RUT July 1320?
      Yes, that's right. There are five short 1320 calls that are part of the 1320/1340 credit call spread and there is one short 1320 call that belongs to the 1300/1320 debit call spread. I don't have problem with that and neither my broker (Interactive Brokers). The RUT July iron condor with the adjustment looks like this:
      +5x RUT July 1100 put
      -5x RUT July 1120 put
      +1x RUT July 1300 call
      -6x RUT July 1320 call
      +5x RUT July 1340 call

      Martin

      Delete
    4. LT:
      As for the close below the Bollinger band, I haven't seriously backtested this occurrence on the SPX, but in Forex when this happens, it is signal of strong continued down-moves instead of the traditional accepted approach that it will reverse to the mean, in fact I have programmed algorithms based on this simple entry rule and they show a positive edge. I will share one of them soon on the site, but again it is Forex, not the SPX or RUT indexes where things may be different. In any case just a warning and thanks for sharing your observation specially if it works for you as an options seller which is the most attractive of my speculative businesses.

      Martin:
      I normally looks at the price action during the past couple of weeks. The Bollinger Bands helps me quantify how the price is actually extended up or down. I read the article on Bollinger Bands that you posted on Twitter. You are right, they consider a close above/below the Bollinger Bands as a sign of continuation in that direction.

      It would be interesting to statistically show if the Bollinger Bands should be used as a reversion to the mean oscillator or as a trend following indicator. Two things to keep in mind for this back test: (i) Our underlyings are SPX and RUT. (ii) Unlike in Forex, where you can hold your positions open for a long time, options trades usually last about 30/40 days -> I don't care where the price is in six months after it closes outside of Bollinger Bands, because by that time my options have already expired.

      Delete
    5. LT:
      As for the debit Call spread, interesting, Jonathan I believe it is a similar strategy as yours, just not too sure when or if Martin would ever take profits early on that debit spread hedge or would just leave it there till the end. It would be interesting to know.

      Martin:
      I would normally close the debit call spread to lock in profit when I am forced to roll the credit spreads further away (2nd adjustment). If I don't feel good about the market I would keep the spread a little bit longer to hedge my new credit call spreads. In any case, I would close the debit spread when the delta of the long option is around 90 or when the price is above the long option, because by then you can't squeeze much more profit from it (plus, it becomes useless as a hedge to your credit spreads.)

      Delete