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.
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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.
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.
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:
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.
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