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Sunday, August 30, 2015

Weekend Portfolio Analysis (August 30, 2015)

We started crashing on Monday only to end higher on Friday. You know, just how we all predicted. SPX opened the week at 1965.15 and closed it at 1988.87 for a +1.21% gain. The index is now down 3.40% for the year but it was below -8% for the year at one point.

This event caused some serious losses to Option Premium sellers around the world, in many cases severely damaging accounts beyond the recovery point. It also put some snake oil salesmen with total disregard for risk management (trading newsletters) out of businesses. As a result the world is a better place now for our children. Thanks Allah.

After more than 5 years of peacefully selling SPX Puts and seeing the entire universe aggressively buying every dip, this was simply destined to happen. I suffered some losses too, but they were very well controlled. The portfolio will reflect a draw-down of around 6%, much better than the 12% correction suffered by the market and the corresponding similar (or worse) draw-downs in most portfolios out there. This is the result of a well studied and back-tested trading system. Most people out there believe huge losses when trading credit spreads are just a matter of time. Not at all. That's only if you want. If anything this site advocates responsible trading of credit spreads. Diversifying positions, keeping only one or two on, defending early. It's the comprehensive and personalized trading guidance that is included in the hefty annual fee that you pay to read this blog.

Market conditions
(Click on image to enlarge)
Stochastics: 45 (neutral)
McClellan: +64 (neutral)
Number of Stocks above their 20 Day Moving Average: 25% (oversold)

We're back in no man's land. I'm looking at 1990 as a possible resistance level and after that 2040. We may trade inside a horizontal 1820 - 2040 range for a while. After such a quick down move, fear and pain are still too fresh in the mind of many market participants. I find it hard to imagine a monster unstoppable rally to new all time highs. I still think there will be some selling pressure as the market moves up and starts revisiting break-even levels of thousands of investors and traders out there. Only time will tell. In any case, I do not think this is the right time for selling neither Calls nor Puts. To me it is simply time to stay quiet and wait for more overbought or oversold conditions.

Events like the one we just lived are not frequent at all even though the world fears them on a daily basis. 4-day declines of at least 10% have happened only 9 times in the last 80 years. So yeah, pretty much once per decade. Eventually the waters will calm, the sun will come out, and lazy traders of the world will keep consistently printing money out of the markets.

September positions
RUT 900/910/1330/1340 unbalanced Iron Condor
With 3 weeks to expiration and RUT at 1163 this one is a winner and I will ride it all the way to expiration. Current RUT price is almost 22% above my 910 short strike and although the market can do anything at any time I see such a move as a very unlikely scenario. Bears also know how panic feels and after the monster rally seen on Wednesday and Thursday short sellers will also be afraid to short too aggressively below the most recent support levels.

SPX 1650/1675 credit Put spread
With SPX getting close to 2000 this position should also be a winner without any problems. I'll simply keep riding it.

October positions
SPX 1700/1710/2195/2200 unbalanced Iron Condor
Looking safer now with a 78% probability of success. The Put side is the only thing in my entire portfolio that might need defense. That is, if we crash again. But other than that this one is starting to feel good and I will passively keep riding it.

In addition to my "income" positions I also have a couple of speculative plays:

A December SPY 216 Out of the Money Call which I bought on Monday in the middle of the third World War. It is just a lotto ticket with more than 15 weeks to expiration so I will not be including it in upcoming weekend articles, except when I decide to close it.

And a September SPY 145 Out of the Money Put which I bought as portfolio insurance on Tuesday the 25th by the closing bell. This 0.47 debit in all likelihood will expire as a full loss but it was a necessary "sleep well" insurance for the whole account.

Action Plan for the week
Some readers of the site mentioned that they didn't receive my articles this week via email. Sorry about that. It is sort of beyond my control. One thing you can do though is check out your spam folder and mark the emails as "not spam" so that they don't end up there in the future. That is, of course, if you received them. Anyways, for a re-cap of my trading activity and how I defended all my positions you can read the following articles:

Defending Positions (Friday, August 21) 

Adjusting Credit Put Spreads on a Panic Day (Monday, August 24)

The Bear Lives on - Bought cheap protection (Tuesday, August 25)

Ok, so what do we have for this week? Trading this week will be simple for me. It will consist of monitoring my existing positions mostly. I do have the intention of selling some Calls but I need for the market to continue in rally mode. If SPX hits 2040 I will sell September 2130 Calls without hesitation.

On the other hand if the market corrects again to about 1830, I will be forced to defend the 1700/1710 Credit Put spread of the October Iron Condor. The adjustment would be very comfortable below the 1500 level.

The LT-Trend-Sniper went long EURUSD this week in what started as a very promising trade:

On Monday the Euro was rallying like mad and the position was more than 300 pips in profit. Unfortunately there was no follow through and it all retraced eventually hitting the Stop Loss. Any trader would have been tempted to take those 300 pips, but this is not a swing trading system, let alone a scalper. It's all about trend following. Frustrating small losses like this one are a necessary price to pay for staying in positions. They are a necessity if you want to be part of the monster 2 - 3 month rallies that bring portfolio gains above +10% in just one trade. As frustrating as it may look now, the Euro will eventually break out of this 1.07 - 1.16 range decisively, and the Sniper will be there.

This was the fifth trade of the Sniper since it went live. Up until now the first two trades were winners and there have been 3 losing trades in a row after that. Trade by trade these have been the results:

1st trade : +11.02% portfolio gain
2nd trade : +5.85% portfolio gain
3rd trade : 3.28% portfolio loss
4th trade : 1.80% portfolio loss
5th trade : 2.81% portfolio loss

Overall, the robot is still up +8.58% for the year with a very manageable draw-down. This is a conservative configuration that I have on. According to history, the robot should still make two more trades this year.

For more details about the LT Trend Sniper robot you can visit this page.

Economic Calendar
A bunch of news here with potential for strong market moves.

Monday: Europe's CPI and China's Manufacturing and Non-Manufacturing PMI.
Tuesday: US Manufacturing PMI
Wednesday: ADP Non-Farm employment change, Crude Oil Inventories
Thursday: Initial jobless claims, Trade Balance, Services PMI, ISM Non-Manufacturing PMI
Friday: Europe GDP, US Non Farm Payrolls and Unemployment Rate

I'm going to New York on vacation and will be writing next weekend's analysis from the Big Apple.
Good luck this week folks!

If you are interested in a responsible and sustainable way of trading options for consistent profits, consider acquiring LTOptions, my options trading system revealed to the last detail.

Check out Track record for 2015

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  1. Good article. I think a lot of new credit spread sellers got a wake up call last week when they saw their accounts going down. Last Monday was busy for me as I was defending positions when it hit a delta of 25 or more. I ended up closing most of my cps positions for small losses. I was also able to deploy some new cps positions a few hundred points lower. Market corrections feels scary but I prefer defending a cps than a ccs position due to VIX skyrocketing higher allowing my new adjusted position to be much lower.

    Current Positions:

    RUT September 30th 1000/990 cps - currently profitable
    SPX October 30th 1650/1640 cps - currently profitable
    SPX November 30th 1550/1525 cps - currently profitable
    SPX December 31st 1600/1575/2275/2300 iron condor - ccs is profitable but cps is showing a tiny loss of $15
    RUT September 30th 1070/1060 debit put spread
    SPX September 30th 1850/1840 debit put spread

    Ay, caramba! That's what I said to myself when I saw SPX down over -100 pnts on Monday morning at the open. Obviously, I was in hurry to adjust all my positions some of which were way beoynd the point where I had planned to adjust them. With all the swing up and down (mostly down), there was no time to play with debit put spreads as I usually do. I switched into Karen mode and I rolled down credit put spreads whenever they got into trouble. And when the new spreads got into trouble again, I rolled them down once more.

    Here's what I did on Monday:
    (1) At the open when the delta of my RUT Sep 1080 puts was around 40, I closed the entire RUT September position for a total loss of -$3543 (-22% loss on $16202 margin).

    (2) After closing the RUT September positin I rolled the money into October by selling to open 7x RUT Oct 910/930 credit put spreads for 1.65 (received $1155 credit with $12845 margin).

    (3) I adjusted SPX October position by rolling all 7x SPX Oct 1690/1710 down to 9x SPX Oct 1580/1600 cps. If all options finish OTM at expiration, this position will result in a loss of -$538 (-3% on -$18537 margin).

    (4) I adjusted RUT October position by rolling 7x RUT Oct 1010/1030 cps down to 9x RUT Oct 920/940 cps. If all options finish OTM at expiration, this position will result in a BE trade.

    (5) In the afternoon with SPX still falling, I closed the entire SPX September position for a loss of -$1941 (-17% on $11586 margin).

    (6) After closing the SPX September position I rolled the money into October by selling to open 6x SPX Oct 1530/1550 cps at 1.55 (received $930 credit with $11070 margin).

    On Friday, when RUT (@1160) retraced 50% of the recent move between 1220 and 1100, I decided to open some credit call spreads. I sold to open 4x RUT Oct 1250/1270 ccs at 1.65 (received $660 credit).

    With all September positions closed, let's look at the PnL for this month. SPX September position was closed for a loss of -$3543; RUT September position was closed a loss of -$1941. So the account is down -$5484 which represents -12% loss in September. Because of this losing month, the YTD profit dropped from +22% to +10%.

    9x SPX Oct 1580/1600 cps + 5x SPX Oct 2200/2220 ccs
    6x SPX Oct 1530/1550 cps
    9x RUT Oct 920/940 cps + 4x RUT Oct 1250/1270 ccs
    7x RUT Oct 910/930 cps

    I am planning to adjust the SPX October positions if SPX falls to 1780 or if it reaches 2130. The RUT October positions are safe with RUT between 1050 and 1180.

    Good trading,

    1. Excellent trading last week Martin. I am glad you stuck to your disciplines. It shows great flexibility in your part to know when to close losing positions. Your new positions look great. I am still waiting for market to be overbought to iron condor some of my cps positions.

    2. Thanks for sharing all your trades and current positions folks.

      Martin, you ended up with a similar draw-down as the market. Around -12% so you are golden. That's exactly the same thing that most traditional passive investments and index followers suffered. You are still up for the year and far better than the general market. Good luck the rest of the year.


  3. LT

    Bit off topic but came across your website and noticed on the "start here" you do a lot of dividends, forex and etf rotations. Do you still do any of these, if so what is the account split? Or is your entire investment income based on trading SPX and RUT ICs?


    1. Hi,

      The ETF Rotation system was a research that I wanted to share for readers to have one more alternative investing method based on momentum strategies. I do not invest on an ETF Rotation system as of right now on any of my accounts basically due to lack of capitalization.

      Investing for dividends, Yes I do it, with a Canadian Broker (Questrade) with which I started an account back when I lived in Canada.

      Forex, yes I do it only automated using the LT Trend Sniper robot. It is a pure spot Forex broker called OANDA.

      Options trading yes, I do it, using TD bank and the ThinkOrSwim platform.

      To sum up, I do 3 out of the 4 things explained in the introductory guides. Each one of them on a separate account.

      Now, the reason why the site's content is mostly about options trading is because it is the activity that keeps me busiest. Forex is via a robot who makes 5 - 6 trades per year. Investing is very passive and long term. Options is what keeps me more active.


    2. Thanks for the reply LT. Your blog's transparency on trades has what keeps me coming back!

      As a personal investor, I struggle with capital allocation across various strategies. I'm also invested in a lot of "safe" dividend players with Questrade (though I think this may overweight CAD exposure to the overall portfolio), option selling strategies (mostly naked puts for me) and buy & hold passive Canadian couch.

      I'm looking to get rid of my buy and hold "Canadian Couch" and apply the rotational strategies but there just are not very good proxies for US ETF's traded here. Converting to USD I'm hesitant given the USD.CAD of 1.32.

      The trend following with OANDA is something I will look further into, seems you are making nice additional gains on that.