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Saturday, February 6, 2016

Weekend Portfolio Analysis (February 6, 2016)

Well, the market has gone flaccid on us. Down 8.02% for the year, to the dismay of passive investors and index followers. But fear not. As an options seller, you don't want to face the virile one. 

Recent Trading Activity

- Initiated SPX May31-2125/2150 Credit Call Spread position on Thursday, creating an 8/8/5/5 Unbalanced Iron Condor with the May31-1475/1500 Credit Put spread.

Market Conditions
(Click on image to enlarge)
Stochastics: 40 (neutral)
McClellan: +49 (neutral)
Stocks above their 20 DMA: 41% (neutral)

No man's land here. No new trades until we reach an extreme. My focus is still the May31 chain for a few more days, but now I need a price extreme to enter a new position.
The extreme overbought conditions now seem more utopian than The New Man, and every time the market attacks recent highs, it just irretrievably goes down a la Mr Shkreli.

Will we revisit the 1,820 lows? 
Nobody knows, but we're just 3.2% from there and we are not currently at an oversold extreme. Those price levels are quite within reach. The good thing is that, if we travel there, the two Credit Put spread positions (Apr29-1475/1450 and May 31-1500/1475) will reach only 10 and 13 deltas respectively. Pfft. In fact, these positions will only need adjustments with SPX falling well below 1,700.


Current Portfolio

March IWM 112/112/120 Synthetic Stock Hedged
Speculative bullish bet on the Russell Index. Max risk on this play is only $520. Don't care about it at the moment and not looking at it at all.

May31 SPX 1475/1500 Credit Put Spread
$1,560 credit. 9 deltas. Drama-free girl.

April SPY 204 Long Calls
Speculative small bullish play using only $420 debit. Less than 0.5% of the portfolio. This position already reached 50% ROI in the past, a few hours after I entered it. I was a greedy bastard back-then and wanted a 100% return. Well, not anymore. Happy with a $100-200 gain here this week.

Feb/Apr SPY 183/200 Victory Spread
Another small bullish bet, although in this case it can also make money to the downside. Feb expiration is getting close, so It's time to start thinking about a retreat here. It is a small risk play so I could let it play out longer to give myself more time to be right, but given that I'm negative overall for the year, and that the position is showing a tiny loss, I will be glad taking it off for break-even if possible this week.

April29 SPX 1450/1475 Credit Put Spread
Total credit of $1,440. Looking like Marilyn Monroe in her prime (and her prime was her whole life). Only 6 deltas and I'm still planning to exit at 2 deltas or so.

May31 SPX 2125/2150 Credit Call Spread
The position initiated two days ago, showing quick profits after the market sell-off on Friday. 6 deltas and I will continue to hold it this week. I plan to take profits once I can close it for 0.50 debit or so. There is now something to feel good about in the portfolio when the market falls. Although the Victory Spread also has a profit area below SPY 186, but it is going away soon.

Action Plan for the Week

- Take $100-$200 gain on April SPY 204 Calls if the opportunity presents itself. Also take the Victory Spread off for a break-even result given the chance.

- If we keep falling hard and reach an extreme oversold condition, I will evaluate selling a RUT Credit Put spread with May31 options, since RUT is looking more oversold to me than the SPX at the moment. Here are the levels I'm looking at in RUT. All the red lines represent potential support and resistance areas. This is a three-year chart and that little yellow line on the bottom right corner is the idea that I'm considering:

(Click on image to enlarge)
There are two Credit Put spread positions in the portfolio. Adding a third one should be done carefully. So, we'd better go very far down. Currently the 780/770 CPS can be sold for 0.90 credit. (May31 options). But we are not in an oversold extreme yet. If RUT re-visits previous lows in the 955 neighborhood, we should be able to sell the 740/730 or 730/720 for that same 0.90 credit. Those price levels represent a greater than 40% distance from the 1,296 all time high reached a few months ago by the index. It is an interesting play in my opinion. And even if it eventually loses, the markets will be down 30% for the year by then and the entire world would be upside down. In the meantime, our portfolio would be down less than 10% for the year, and the adjustment for this play would come at a level not seen since the Paleozoic.

I think overall the portfolio is in great position to face whatever the market throws at us. Stress levels are very low right now despite the seemingly shaky environment.


Forex
Long the EURUSD on Thursday at 1.11081 via the LT Trend Sniper. This is the first position of 2016. I will also start trading Gold mechanically with the same strategy this year, but so far, no trading signals yet. I will talk about automated trading strategies for trading Gold in future mid-week articles.


Economic Calendar
Very light schedule this week.
Wednesday: US Crude Oil inventories.
Friday: European GDP, US Retail Sales.


With closed positions and trading costs included, we are down 2.92% for 2016 while the market is down 8.02%. The portfolio is currently 38% at risk, 62% in cash.

Take it easy. But take it anyways.
LT

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