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Saturday, July 11, 2015

Weekend Portfolio Analysis (July 11, 2015)

The S&P500 started the week at 2068.76 and closed it at 2076.62 for a small 0.38% gain in the end. On Wednesday I took advantage of the extreme pessimism prevalent everywhere forecasting the end of the Universe and sold an August SPX 1815/1825 Credit Put spread that is looking pretty good now. I never talk about fundamentals just because to me it doesn't make sense to do so, but Greece in this case is old news that the world has been dealing with for 4 years now. Financial institutions have cut their exposure and risk in Greece from the 2011 levels and it is not as catastrophic as the media portrays. China is perhaps more concerning but pessimism is extreme when only 20% of the stocks are trading above their 20 Day moving average and the whole world has bought Puts already to save their butts from the Apocalypse. If the market sell off was going to happen it needed to happen fast and catch people off guard. An elevated VIX allows you to position your strikes comfortably far out of the money providing you with nice cushion for error. It's just good odds.

Market Conditions
(Click on image to enlarge)
Stochastics: 32 (neutral)
McClellan: +38 (neutral)
Number of Stocks above their 20 Day Moving Average: 38% (neutral)

We're back to no man's land but still closer to a short term oversold extreme with lots of upside room. A bullish divergence was formed as price made lower lows while the McClellan oscillator was making higher lows. This is usually a very powerful signal and it coincided with support around 2040 being held beautifully.

(Click on image to enlarge)
The long term trend is still up. The intermediate price action is a sideways horizontal channel between 2040 and 2135 that has been in play since early February.

Being in no man's land territory as we are, I prefer to just sit on my positions and let time decay do its job. This is not the ideal time for Credit Call spreads selling.

July positions
SPX 1935/1940/2220/2225 unbalanced Iron Condor
99% probability of success with only one week to expiration. This position will yield max profit on Friday morning. It should be a quiet expiration date for The Lazy Trader.

August positions
RUT 1150/1160/1350/1360 unbalanced Iron Condor
77% probability of success with 6 weeks to expiration. No concerns on the Call side. The position started to look good this week, finally. I almost had to defend by making adjustments on the Put side but it was not necessary in the end as the adjustment condition was not reached. All looking better now.

SPX 1815/1825 Credit Put spread
The trade entered on Friday Wednesday. Looking very comfortable to ride. 6 weeks to expiration. Nothing new to say here.

Action Plan for the week
I will let the July SPX 1935/1940/2220/2225 expire on Friday.

I am not concerned about the August SPX 1815/1825 Credit Put spread. It won't need adjustments in the near future.

With the August RUT 1150/1160/1350/1360 I still have to be careful and in fact this is my main focus for now. I will adjust the Put side if RUT falls to around 1220 this week. That would make the 1160 short Put reach 30% probability of being in the money. If that happens I will close for a loss and will deploy new capital in the 1080 - 1070 area.

(Click on image to enlarge)
RUT has formed a clear uptrend channel and it was well supported. It looks poised to continue moving up, but we always have to be prepared and have a plan just in case.

As for new positions, no thanks :)
It's time to strictly focus on the defense. A good defense wins championships.

Economic Calendar
Sunday: European Leaders Summit to hopefully get it over with the whole Greece's situation.
Tuesday: Germany Economic Sentiment. US Retail Sales. China's GDP and Industrial Production.
Wednesday: US PPI, and Crude Oil Inventories.
Thursday: Europe's CPI, US Philly Fed Index.
Friday: US Building Permits, Core CPI, Housing Starts, Michigan Consumer Sentiment.

Good luck this week my friends!

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  1. You have a typo: "The trade entered on Friday. Looking very comfortable to ride. 6 weeks to expiration. Nothing new to say here."

    It should say 'Wednesday' because I also sold some credit put spreads that day in my personal account. :)

    What I did last week:

    On Monday, we had an oversold condition on RUT. I sold RUT September 30th 1050/1040 for .75 credit.

    On Tuesday, I closed SPX September 30th 2275/2300 ccs for .25 debit. I opened this position on 5/11/15 for $2.45 credit. Profit is $2.15.

    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

    RUT September 30th 1050/1040 cps - currently profitable

    SPX September 30th 1725/1700 cps - currently profitable

    SPX September 30th 1800/1790 cps - currently profitable

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

    1. You are correct it was on Wednesday. Just fixed it.

  2. Hello all, my summer hols are over, and I'll be back to the office on Monday. But the real job, the one makes me think on a passionate future plenty of freedom begun on Thursday when I opened positions on August and September.

    Current Positions are:

    July RUT 1010/1020 @ 0.35 cps
    July SPX 1850/1860 @ 0.7 cps
    Aug RUT 1360/1370 @ 0.35 ccs
    Aug SPX 1815/1825 @ 0.45 cps
    Sep RUT 1040/1050 @ 0.60 cps

  3. Last week:
    On Tuesday, I adjusted the August RUT iron condor. When RUT was around 1231, my position was down about -4.5% and the delta of my short Aug 1160 puts was over -22. I decided to reduce futher losses on the downside by buying one Aug 1160/1190 debit put spread. This cut the position delta from 20 to 10. The debit spread cost me 6.50 which lowered the maximum profit at expiration to about $670.

    Open positions:
    5x SPX Aug 1830/1850 cps + 4x SPX Aug 2200/2220 ccs + 1x SPX Aug 2180/2200 dcs
    5x RUT Aug 1140/1160/1360/1380 ics + 1x RUT Aug 1160/1190 dps

    Next week:
    I am planning to open new credit spreads in SPX with September expiration next week. With the Friday close, I am thinking about an unbalanced iron condor: 6x SPX Sep 1820/1840 cps + 4x SPX Sep 2200/2220 ccs. The initial adjustment points for this position would be (2000;2140); this is 70pts of cushion up and down.
    Apart from that, I will watch my exiting credit spreads with August expiration. The adjustment points for the August SPX position is (2020;2160) and (1205;1310) for the August RUT iron condor.

    Good trading,

  4. Hi LT,
    I was also watching the Chinese stock market last week. Back in 2008, when SPX went from 1300 to 800 (-38%) in two months, the VIX shot up from 20 to 80. The Shanghai stock index plunged from 5200 to 3500 (-33%) in one month. I wanted to see what the index volatility is, but I didn't find a chinese equivalent to the VIX index.


    1. I didn't either Martin. No idea what the VIX equivalent is in the Chinese markets. In any case, and although it looks scary, remember that these extreme moves are not common. The cost of not doing business over time is greater that the eventual loss in an event like this that is not frequent at all.