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BookingAlpha Option Trading Advisory

Sunday, November 22, 2015

Weekend Portfolio Analysis (November 22, 2015)

As it turns out, "the prospects of a rate increase" is now "good" for the markets as it signals "confidence" from the Federal Reserve. It's funny how the same "prospect of a rate hike" has been being used for more than a year as the excuse for markets weakness as investors have "grown concerned" over a rate hike possibility. See the irony? The same rate increase has been used to support a negative case and its exact opposite. Clearly, this cannot be.

Savvy traders should entirely stop paying attention to the financial news circus and its union of overpriced analysts. Doesn't do you any good. Doesn't bring any value. You know, I also read "Financial Independence" blogs in my free time, most of which have sadly zero content about active trading. In the past, some of them have promoted "shopping bans". Like 6 month shopping bans or one year shopping bans...all in the name of frugality. I'm frugal but not truly hardcore. I wish I was. However, I will start my own "ban", just because it is trendy nowadays to go on bans. Here it goes: "I will not read any piece of financial news for a month." CNBC, Bloomberg, Marketwatch, Wall Street Journal not even for entertainment purposes to fill up my free time. I will only read the Economic Calendar in advance to know which of the coming days has a greater probability of being more volatile than usual. I will trade mechanically with total disregard for what is being fed directly into our overly saturated brains. I will be totally unplugged for a month, and then I will re-evaluate. The "ban" may end up being extended for the whole 2016, making me the happiest man on Earth. How sincere and kind to myself will that be! My answer to readers asking my take on the impact of the situation in Syria would be the same: "Why are you torturing me like this again?".

November Expiration is in the books and I ended up with a -1.82% return after commissions. The model portfolio is up +10.38% Year to Date vs +1.47%  for the S&P500 index. At its highest point of the year we were up +19.28%. This was late August. Since then it has been a real battle facing unfavorable conditions for the strategy. I'm not 100% satisfied. We'll never be. But I think overall we've done a decent work containing the damage. I think the storm is in the past now.

This was an active week where I started trading 2016 options. I began by buying March SPY 161 Puts on Thursday and then on Friday I initiated a January SPX 1865/1875/2200/2210 unbalanced Iron Condor. It feels good to be back in offensive mode and not opening a million positions out of necessities for hedges and adjustments.

Market Conditions
Before I start the market conditions segment, I want to point out this is the 100th article this year. At one point I thought it was just not going to happen in 2015. But thanks to your continued support, comments, advice and concerns, I'm more pumped than ever to continue on this road: writing articles for hundreds of addicts and lunatics around the world who simply want a better present for themselves and their families. Thank you for being part of this. Makes it all make sense.

The market went up a solid +3.32% this week and as it approaches all time highs it should start to move slower. Rallying from oversold conditions is the easy part. On the previous Weekend Portfolio Analysis we mentioned that a short term pessimistic extreme had been reached, exaggerating fear and overpricing the January SPX 1750/1745 Credit Put spread which was trading for 0.30. That was a conservative and pretty effective idea in the middle of the historically best period for the Bulls case (November - January)

(Click on image to enlarge)
Stochastics: 88 (oversold)
McClellan:0 (neutral)
Number of Stocks above their 20 Day Moving Average: 51% (neutral)

We are in no man's land here and according to my rules it is not the ideal time for individual credit spreads selling on one side of the markets. Plenty of room to move in either direction. In times like this I prefer to sell 8 week to expiration Iron Condors.

December positions
SPX 1880/1885/2190/2195 Iron Condor
Looking good here with SPX at 2089. No threats at the moment. 86% probability of success.

RUT 1010/1015 Credit Put spread
This used to be an Iron Condor whose Call side I closed a few days ago for a small profit. The Put side, still in play, looks great here with RUT priced at 1175. No concerns for this week.

January positions
SPX 1865/1875/2200/2210 unbalanced Iron Condor
The position initiated two days ago. Lots of baby-sitting ahead. 78% probability of success and being so new, it is obviously far from trouble.

Action Plan for the week
I won't do anything. Simply because there is nothing to do. Enough positions working, all of them healthy. The only thing I might do is sell a RUT 5 point wide December Credit Call spread above 1250 for 0.50 credit or better to complete a RUT Iron Condor position in that cycle. But for that to happen RUT must rally about 30 points (more than 2.5%) in the week. Possible but unlikely in my opinion.

The LT Trend Sniper robot is still short EUR/USD. The position, initiated 17 days ago, continued making progress this week as the currency pair fell bellow 1.07

(Click on image to enlarge)

Entry price level in green, Stop Loss line in red 194 pips higher.
220 pips in profit at the moment.

This trade is out of the woods. It will be a winner no matter what. We just don't know the magnitude of this winner yet. The Sniper always gives away part of its profits before exiting a position. It is the only way to ride trends for as long as possible. Given Friday's close it should stay in this position for a few more days. Unlikely to be closed this upcoming week.

Economic Calendar
Nothing extraordinary on the news front.

Monday: Manufacturing PMI, Existing Home Sales
Tuesday: German GDP and Business Climate Index. US GDP and Consumer Confidence
Wednesday: Core Durable Goods, Services PMI, New Home Sales, Crude Oil Inventories

Good luck this week folks!


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