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Saturday, September 26, 2015

Weekend Portfolio Analysis (September 26, 2015)

I spent very little time this week looking at the markets. Safe positions far out and nicely set up price alerts allowed me to focus and be productive in other areas of my life. When this happens I usually lose a bunch of followers and the number of visits to this blog is drastically reduced. I made no trades and all is looking good in Lazy Trading Land.

Market conditions

The SPX index went from 1960.84 to 1931.34 this week for a 1.5% decline. The index is now down 6.20% for the year. Even though the markets have been generally weak, it doesn't seem to be in panic mode. Slow, steady declines, frustrating for the buy and holders but no heart attacks. This environment could be the perfect set up for selling Puts before the strongest part of the year begins (November - January)

As usual, let's take a look at the beast
(Click on image to enlarge)
Stochastics: 17 (oversold)
McClellan: -30 (neutral)
Number of stocks above their 20 Day Moving Average: 31% (neutral)

We are still seeing a neutral reading (according to my rules) but closer to the short term oversold extreme. Selling Out of the money Puts is becoming attractive especially with the VIX above 23. My instrument of choice at this point is RUT as it looks weaker than the SPX and a bit more oversold. Friday's red bar on the Russell was more extreme than that of the SPX.

(Click on image to enlarge)

Right now, it is possible to sell a November RUT 940/930 Credit Put spread for 0.60 credit with more than a 90% probability of success. This is 16% below current price and 27.5% below the June highs. I won't trade just yet as I like to wait for my system to trigger that decision and leave as little as possible up to my subjectivity. It's called discipline, but I recognize it's already an attractive opportunity.

October positions
SPX 1700/1710/2195/2200 unbalanced Iron Condor
SPX currently at 1931. Need I say more?

November positions
SPX 1630/1640/2100/2110 Iron Condor
Very healthy, very safe. No concerns. Looking great now with a 87% probability of success.

Action Plan for the week
I'll keep riding the two Iron Condors. None of them are likely to need adjustments this week.

As for new trades: RUT October Credit Put spread. If RUT falls about 2% from here I should be able to sell the 1000/990 Credit Put spread for 0.60 credit or better. With a little more than two weeks to expiration that one looks attractive to me and if market weakness persists after October expiration I can enter another Credit Put spread position with November options. In other words, playing the same oversold condition twice, without ever having twice the risk on.

Of course when I look at the November cycle I see that the 940 strike price is the closest one to a 10% probability of in the money at expiration. If RUT falls 2% at any point this week, there is a chance that the 910 strike price will be the one around 10% probability. Selling 910/900 in November obviously gives me a much greater cushion, than selling the October 1000/990 but I would be playing the market weakness just once, rather than twice if I choose to exploit it with a quick October win plus a November one later.

What do you think folks? What is your preference and why?

Note: By the way you will notice that the comments section has been upgraded to the Disqus platform. Much nicer and allows for better interaction. Also, no more anonymous comments allowed after today. If you experience some performance issues like the page taking too long to load or something, let me know and I'll see what I can do.

Economic Calendar
Monday: US Pending Home Sales
Tuesday: Goods Trade Balance, CB Consumer Confidence, German Unemployment change
Wednesday: Europe CPI, German Unemployment, Chinese Manufacturing PMI
Thursday: ISM Manufacturing PMI
Friday: Non Farm Payrolls, Unemployment

Good luck this week my friends!

Check out 2015 Track Record

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