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BookingAlpha Option Trading Advisory

Saturday, June 27, 2015

Weekend Portfolio Analysis (June 27, 2015)

The SPX Index opened the week at 2112.50 and closed it at 2101.49 for a small 0.52% loss. Year to date, the index, also known as "the market" is up +2.07%, with the first half of the year almost gone. Presumably 90% or so of traders in the world, including professional money managers, are making less than 2% for the year so far. You can count on that.

It was a fun week where I made the first trade of the August expiration cycle: a RUT 1150/1160/1350/1360 unbalanced Iron Condor. For more details about that trade you can read my article here.

Market Conditions
(Click on image to enlarge)
Stochastics: 45 (neutral)
McClellan: -62 (neutral)
Number of Stocks above their 20 Day Moving Average: 51% (neutral)

No man's land. You know the drill: no individual credit spreads until we go to a price extreme. We haven't had many this year. The market has been trapped inside the 2040 - 2135 range since early February (less than 5% range), and inside the 2070 - 2135 range since early April (3% range). Of course in hindsight you can say we have just been wasting our time and we should have sold credit spreads left and right all this time. They would have all been winners after all. Hindsight is beautiful isn't it? Hindsight makes a lot of people rich selling crappy courses or getting jobs at Marketwatch or CNBC. Unfortunately we are not fortune tellers. We are "right side of the chart" traders, not "left side of the chart" trades, and the truth is that having sold individual credit spreads during all these months was risky business as it is not common for the market to stay trapped in sideways motion for almost 5 months as it has been the case. We'll break out of this range eventually, and when that happens we'll jump onto our prey, but it's not the time. Be Lazy. Be a sniper.

July positions
SPX 1935/1940/2220/2225 unbalanced Iron Condor
93% probability of success and 3 weeks to expiration. With SPX sitting at 2101 this position is looking great. No concerns.

August positions
RUT 1150/1160/1350/1360 unbalanced Iron Condor
This is the trade entered a few days ago. 8 weeks to expiration and 74% probability of success. Lots of baby-sitting ahead. Nothing new to point out.

Action Plan for the week
The Put side of the July SPX position will reach adjustment condition if SPX falls to around 2000. At that point that Put spread will reach 30% probability of being in the money and it would be time to adjust. 2000 is unlikely in my opinion. 5% below current price. Unlikely move for a week. On the way up, the Call side will reach adjustment condition if SPX hits 2200 (5% above current price). A very, very unlikely scenario for a week of market action. So, I'm not concerned with this position and will continue to peacefully baby-sit it.

As for the August RUT position. The Call side will need an adjustment during the week if RUT reaches 1320. I think that's unlikely in an all-time high environment already. But if it happens, I will close the 1350/1360 Call spread for a loss and will deploy new capital in the 1380 area. On the way down, RUT falling to around 1220 will have me defending the 1150/1160 Put side, redeploying capital in the 1080 area. Those are my adjustment plans, but I think it is highly unlikely that I'll have to do anything in the end.

The offensive game. Potential new positions. I will start wearing my underwear backwards starting today, to see if we finally reach a price extreme. Who knows? It might work.

I'm still interested in the July cycle. If the Russell index falls down to around 1250 from its current 1279, selling the July 1160/1150 Credit Put spread for 0.60 credit or better will be an attractive play. I would go with that one. To the upside, I would be willing to sell July RUT 1350/1360 Credit Call spread for 1.00 credit or better but for that the index needs to rally about 30 points from here, to around 1310. That's a 2.5% rally, which although not impossible, seems unlikely for just 4 days of market action (Markets will be closed on July the 3rd).

To sum up, RUT hitting either 1250 or 1310 will lead me to sell out of the money credit spreads using July options. If neither one of those scenarios take place, then no new positions and also no need for adjustments to the existing ones, as it is a sign that the markets have remained calm.

Economic Calendar
Monday: US Pending Home Sales
Tuesday: Europe's CPI. US Consumer confidence. China's Manufacturing PMI
Wednesday: Germany's PMI. ADP Nonfarm Employment change. ISM Manufacturing PMI
Thursday: Nonfarm Payrolls. Unemployment Rate.
Friday: Markets closed.

Take it easy folks. See you on the cyberspace.

If you want to learn how to accurately estimate your losses in advance, your future adjustment points, future credits to receive and much more, consider acquiring LTOptions, my options trading system revealed to the last detail. 

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  1. Just another boring and profitable week in the life of a conservative credit spread seller. RUT will trigger my oversold signal if it hits 1245 for me. If it does do that next week, I might sell Sept 30th 1060/1050 cps for .65 credit or better.

    SPX will trigger my oversold signal if it hits 2065. If it does do that next week, I might sell Sept 30th 1800/1790 cps for .65 credit or better.

    We are still in no man's land but this can change quickly. I did not make any trades last week. Here are my 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 - currently profitable

    SPX September 30th 1725/1700 & 2275/2300 iron condor - currently profitable

    SPX October 30th 1725/1700 & 2275/2300 iron condor - currently profitable

    1. Hi Jonathan,
      Check my comments to your questions in previous weekend portfolio analysis. Sorry, I didn't reply earlier. I was on a business trip last week.

    2. Thanks Martin. Good stuff.

  2. Last week:
    On Monday, I adjusted August SPX iron condor. In five days, the SPX went from 2075 to 2126 hurting my August SPX credit call spreads. Although the delta of short Aug 2200 calls was only 17, the position showed open loss of -6%. I decided to hedge the credit call spreads by buying one SPX Aug 2180/2200 debit call spread for $525 which reduced the position delta from -22 to -13.

    On Friday, I closed the July RUT iron condor position for profit $467. I planned to hold this position longer, but with the Greek debt drama unfolding I decided to cut the number of open positions. I don't normally trade on news, but I have no idea if Greece will go bankrupt next week and how the market will react to it. Two open August positions are enough for me.

    With all July positions closed, the July expiration brought around 3% of profit and 21% of profit YTD.

    Open positions:
    5x SPX Aug 1830/1850/2200/2220 ics + 1x SPX Aug 2180/2200 dcs
    5x RUT Aug 1140/1160/1360/1380 ics

    Next week:
    I will watch the open positions. On the downside, I would adjust the August RUT ics when RUT is around 1230. As for SPX, I may get rid off the debit call spread when SPX hits 2060 to flatten out the position delta. Next adjustment will be when SPX falls to 2020.

    Good trading,

  3. Hi LT,
    I like the unbalanced August RUT 1150/1160/1350/1360 iron condor. It's pretty close to mine that I opened on Monday. I sold the 1360 calls, but I opened equal number of cps and ccs.

    > Friday: Markets closed.
    Thanks for pointing this out. I forgot that there is July, 4th next week, so the markets are closed on Friday.