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Saturday, February 27, 2016

Wekeend Portfolio Analysis (February 29, 2016)

Market up 1.2% this week and now down 4.69% year to date. Only two weeks ago it looked like a hopeless Kardashian, while it was touching short term extreme pessimistic levels. Such is life.

Recent Trading Activity

- Closed Apr 204 SPY Long Calls for a tiny $60 loss on Friday

Market Conditions
(Click on image to enlarge) 
Stochastics: 88 (overbought) 
McClellan: +236 (overbought)
Stocks above their 20 DMA: 74.6% (overbought) 

We've quickly reached a short-term overbought extreme. Although selling Credit Call spreads is always a good way to get Aids, this is the environment where chances of contagion are a little less than normal.

I personally haven't sold Calls yet this time around. The overbought environment was just reached yesterday Friday and there are two CCS positions in the portfolio which showed 10 deltas during the session. Adding a new one at also ten deltas would mean too much concentration of risk on the same spot, even if done via a different symbol such as RUT. Still, these animals have a high correlation. I was waiting for more, so that I could deploy a RUT June30 CCS using the 1180/1190 strikes for 1.00 credit or better, ideally 1190/2000 but we never had that strong of a rally. If I get to play this Credit Call spread in the upcoming week, I will use a smaller size than usual, so that I can deploy normal size on a hypothetically necessary adjustment and totally overcome any loss. The number of stocks above their 200 DMA is only 26%, still well below historical averages, another reason to not be overly aggressive with the position size in this trade.


If the move up persists, next resistance zone for SPX 1,990-2,000. For RUT an interesting level would be 1,080, which has acted as support in the past.
 
Current Portfolio

March IWM 112/112/120 Synthetic Stock Hedged
Speculative bullish bet on the Russell Index. Quite possibly a lost cause. Max risk on this play is only $520. Not looking at it at all.

May31 SPX 1475/1500 Credit Put Spread
$1,560 credit. 5 deltas. Looking perfect.

May31 SPX 2125/2150 Credit Call Spread
$1,250 total Credit. Showing some gains and only 8 deltas at the moment. No concerns for now.

June30 SPX 1500/1525/2150/2175 Unbalanced Iron Condor
$2,580 credit. 9 deltas on the Call side, 8 on the Put side at the moment.


Action Plan for the Week
Little by little we go back to normalcy. February has been the continuation of the transition from short term to longer term positions. For this reason, there was not much activity in the month and only one true "income" position was closed. The transition is over now. We'll see how it goes the rest of the year. I'm confident profits will start to flow. For now, all the positions are looking great and we have some partial gains in all of them.

- If we fall hard, reaching an oversold condition, I'll sell a June30 RUT Credit Put spread. We may need about a 5% fall in a week to reach an overly pessimistic extreme, so I don't think this scenario is very likely.

- Sideways action, nothing to do. Be a boring nerd.

- If we keep rallying to the point where the 2175/2200 Credit Call spread on SPX can be sold for 2.25 credit or better, it would be my play. This would leave me on a 2150/2200 CCs where the 2175 Calls would be closed for nice gains. If we don't rally this hard, but still go up a little so that the RUT 1180/1190 or 1190/1200 can be sold for 1.00 credit, then that would be my play but just a small position to test the waters.

- Existing positions will not need any defensive moves this week.

- Updated adjustment points for existing Credit Spread positions:
   . Defend May31 1500/1475 Credit Put spread if SPX falls to around 1,620 (very unlikely)
   . Defend May31 2125/2150 Credit Call spread if SPX reaches 2,040 (unlikely)
   . Defend Jun30 2150/2175 Credit Call spread if SPX reaches 2,050 (unlikely)
   . Defend Jun30 1500/1525 Credit Put spread if SPX reaches 1,660 (very unlikely)


Economic Calendar
Monday: Europe CPI, Chicago PMI, China's manufacturing PMI
Tuesday: US Manufacturing PMI
Wednesday:ADP Non-farm Employment change, Crude Oil Inventories
Thursday: ISM Non-Manufacturing PMI
Friday: Non-Farm Payrolls, Unemployment change


Options Trading results - With closed positions and trading costs included, we are down 2.26% for 2016 while the market is down 4.69%. The portfolio is currently 36% at risk, 64% in cash.

Forex Trading results - Up +4.36% for the year. 100% cash at the moment.

Thanks for reading. Good luck this week folks!
LT

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