I was pretty active during the week first opening the RUT 1120/1130/1330/1340 unbalanced Iron Condor with September options then closing the August SPX 1815/1825 Credit Put spread early to lock in some profits and get ready for possibly opening another Credit Put spread in the near future.
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McClellan: -135 (neutral)
Number of Stocks above their 20 Day Moving Average: 29% (oversold)
We have 2 neutral readings and an oversold one. Overall this is no man's land to me but obviously close to a short term extreme pessimism. Notice that I always say "short term". When a market reaches an extreme, I only care about rebounds or pull backs in the next few weeks. The market can reach an extreme oversold reading and it doesn't mean that it won't go down 20% in the next two years. It just means, to me, that a move in the opposite direction (or sideways) is due in the short term, which frankly is all I care about when trading options one or two months out. Anyways, no man's land but getting close to a short term oversold extreme. Horizontal support on the SPX is in the 2040 area, or almost 2% below current levels. That would be a good level for out of the money Puts selling which I'll discuss later on.
August RUT 1150/1160/1350/1360 unbalanced Iron Condor
82% probability of success with 4 weeks to expiration. Looking decent but it may need some attention. The Call side is a winner. The Put side may need adjustments if RUT falls to around 1205 this week. RUT is priced at almost 1226, therefore 1205 is a real possibility.
September RUT 1120/1130/1330/1340 unbalanced Iron Condor
8 weeks to expiration and 75% probability of success. The Call side is comfortable. The Put side may need adjustment if RUT hits 1195 or so.
Action Plan for the week
It is no fun to have two positions with similar risk profiles. They have different probabilities, different strike prices, different expiration months which moves the probabilities numbers and adjustment points differently, one burning that theta faster,...but, it is two correlated positions nonetheless affected by the same market movement. I also have Calls in those positions working in my favor. So, it is not terrible, but I won't deny that it is not comfortable either.
If RUT falls to around 1205 (this is just an approximation, the real trigger is the Aug 1160 Put reaching 30% probability of in the money) then I will adjust the Aug 1150/1160 Credit Put spread down to the 1100 area. There will be a temporary loss there, but provided the adjustment wins it will still be a positive August when all is said and done.
If RUT falls harder than that, to around 1195 I may need to adjust the September 1120/1130 Credit Put spread side of the Iron Condor that I opened this past week. In this case, the adjustment would be made towards the September 1050 area, where I think chances are very good for a win.
I obviously don't want to see RUT falling, but if it does, risk will be managed as usual and losses will be controlled. It is always easier to defend the Put side as volatility expands and the adjustments can be placed so much further down with decent credits. The real pain happens during true market crashes where the market just keeps falling precipitously in a short period of time.
If SPX moves down to the 2040 horizontal support area the market will probably be in extreme pessimism mode. At that point selling the August SPX 1900/1895 Credit Put spread for 0.30 credit or better would be an attractive play where I would put my money. Alternatively you can use September options and then go even lower into the 1800 zone. I would personally still go with August options.
Finally, if we stay sideways or move up, I will stay put. If RUT moves up decently, I may close the RUT August Iron Condor for 80% of its max profit if that number is ever reached.
The Euro had a strong week and the Sniper ended up with a losing trade. I had an issue with my MetaTrader station where I had to uninstall/reinstall. When it was all fixed, I logged into the New York server (GMT-5) instead of the recommended GMT+2 server. I didn't realize it until yesterday. Due to this, my daily bars were different and the rules to exit just materialized. But for those playing on a GMT+2 server, the trade should still be open. The performance of the Sniper is now +11.72% year to date and there should be two more trades left in the year. So far there have been 4 trades, the first two were winners, the last two have been losers but the winners have been much bigger in comparison.
Monday: Core Durable Goods Orders
Tuesday: CB Consumer Confidence
Wednesday: US Pending Home Sales and FOMC Statement.
Thursday: US GDP
Friday: China's Manufacturing PMI
Good luck this week folks!
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