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Saturday, August 27, 2016

Weekend Portfolio Analysis (August 27, 2016)

Well, for the first time in a good while we saw some weakness. It almost feels like a crash after so many weeks of every minimal decline being bought aggressively. The market was down 0.74% for the week and it is now up 6.12% for the year.

Market Conditions 

We can finally go back to the drawing board and establish some more meaningful lines. In the case of SPX, a rising wedge that points to a 2245 high by October expiration and 2150 on the lower end. Max 2220 and Min 2100 by September expiration.

(Click on image to enlarge)
Stochastics: 23 (neutral)
McClellan: -104 (neutral)
Stocks above their 20 DMA: 53% (neutral)

No man's land. Quickly approaching a short-term oversold condition, which is unbelievable when price really has barely gone down from all time highs in the big picture. I want to see a 2% decline or so. That should put us firmly in short-term oversold price extreme and close to the lower end of the wedge. It would be a good opportunity for selling out of the money Puts. We have been conditioned to not be bearish ever again in our lives given recent price action. But, markets will continue to be markets. They will go down at some point, just like they always do. Perhaps when the smallest number of people expect it.

The resiliency shown by the beast for so long, refusing to go down barely 10 points is what I need in order to sell Out of the money Credit Put spreads with confidence when the price extreme condition presents itself and people think the world is falling apart.

And here's the Russell 2000
(Click on image to enlarge)
 Looking more like an uptrend channel than a wedge. Pointing to a high of 1300 and low of 1205 by October expiration and 1275, 1170 by September expiration.

The resistance lines of the patterns in both indexes point to slower gains to the upside as both indexes are still relatively close to the upper end of their ranges.

Magical voodoo lines aside, whenever I sell option contracts, I will try my absolute best to select strikes beyond those points. At least it is good to have some kind of guidelines again.

Current Portfolio

SEP SPX 1825/1800 Debit Put Spread + 1625/1600 Credit Put Spread
Portfolio Insurance

OCT SPX 1825/1800 Debit Put Spread + 1625/1600 Credit Put Spread
Portfolio Insurance

September SPX 1970/1980 Credit Put Spread 
$1,200 credit. Looking great. The plan is to ride it all the way to expiration as I wouldn't deploy that capital anywhere else at the moment should I close the position tomorrow.

October RUT 1100/1110/1320/1330 Unbalanced Iron Condor
$2,200 credit. 8 weeks to expiration and lots of baby-sitting ahead. 10 deltas on the Call side and 11 deltas on the Put side. It shouldn't need to be touched at all during this upcoming week.

Action Plan for the Week

Ah, the good times of the Lazy Mantra. Although my performance is still mediocre this year, it's been a while since my last stressful position. Fortunately, both income positions are safe as of now, and the two other positions are anti-crash protection. They welcome calamity to the downside. Chances are very small that I will need to adjust any of the existing income positions this week. I'm not seeing the need for any defensive move.

As for new positions. I'd like to sell a Credit Put spread if we reach a short-term oversold extreme.
Now, if we reach it before Wednesday, I will use September options and the RUT. If we reach it after Wednesday, I will use October options and the SPX index.

I'm also going to start thinking about the next Lazy Elephant. Right now, the plan is to use SPX for this.

For example an October SPX 10/10/10/12 Lazy Elephant, using strike prices 1980/1990/2260/2270 looks like this:

Max potential profit $1340, max risk $8660.

But, I'm first going to wait. I'll give myself a couple of weeks to see if we reach the oversold extreme condition and I get the opportunity to deploy a good old-fashioned Credit Put Spread. So, next week, I'll be revisiting this October Lazy Elephant idea.

Given the sub-par performance in 2016, the game plan is to deploy at least two income (credit) positions per month for the rest of the year. Also possible given the fact that I'm usually more than 50% in cash. So, I want to push it a little the rest of the way and see if we can put some decent numbers come year end.

Economic Calendar

The first week of the month is upon us, and that means, Jobs report. Good news have been good news the last two times. We'll see if the markets finally come to life (move decently) with the beginning of the new month.

Tuesday: US Consumer Confidence
Wednesday: ADP Employment change, Pending Home Sales, Crude Oil Inventories. China's Manufacturing PMI
Thursday: ISM Manufacturing PMI
Friday: Non-Farm Payrolls, Unemployment Rate

Options Trading results: Up +3.21% YTD vs S&P up +6.12%. Portfolio 45% invested, 55% cash.

Have a nice week folks!

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