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Saturday, September 10, 2016

Weekend Portfolio Analysis (September 10, 2016)

Stairs up and elevator down. We can sum it up that way. Up slow, down fast. Like an old man's...ehem,..."stamina". Friday's price action ended exactly at the low of the day, and it was a huge bar. Lower prices will come. But before we get to excited, remember that recoveries have been vicious, violent V shapes in the last, well, two or three years. So, careful selling Calls too aggressively.

Recent Trading Activity

- Initiated SPX October Lazy Elephant on Monday

- Closed Call side of SPX October Lazy Elephant for a $320 gain on Friday

Market Conditions 

SPX down 2.47% for the week and now up +4.10% for the year. Just like that, we are at the same price levels of May last year. 16 months ago. Price action in the SPX index still inside the rising wedge.

(Click on image to enlarge)
Stochastics: 57 (neutral)
McClellan: -147 (neutral)
Stocks above their 20 DMA: 34% (neutral)

Still no man's land but quickly approaching an overly pessimistic extreme.

When the market makes a bar like the last one: a 2% - 3% move, and closes near their low, it usually indicates lower prices to come the next session. If not a lower closing price, at least on an intra-day basis.

SPX 2,120 was formidable resistance in the past. Who knows if the bleeding stops there?
I'm more inclined to think it is just too close and hit-able now, so' I'll be looking at the lower end of the rising wedge with interest. That would be the SPX 2,100 neighborhood. Getting there would put us in an oversold short-term extreme condition. At that point, traders should be able to initiate SPX November 1825/1815 Credit Put spreads for 0.60 credit or better, or October Credit Put spreads in the high 1,800's. Both attractive opportunities. In my case in particular, I have 3 Credit Put spreads on already and won't be adding exposure on that side. One of the positions is a September 1980/1970 with expiration this upcoming Friday, which should be no problem. So, I'm not too concerned about that one. The other two, may need my attention depending on how far down the market goes.

Current Portfolio

SEP SPX 1825/1800 Debit Put Spread + 1625/1600 Credit Put Spread
Portfolio Insurance. Will expire this Friday. Small $160 loss.

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

September SPX 1970/1980 Credit Put Spread 
$1,200 credit. Should expire this Friday without problems.

October RUT 1100/1110/1320/1330 Unbalanced Iron Condor
$2,200 credit. 6 weeks to expiration. 77% probability of success now. 4 deltas on the Call side and 14 deltas on the Put side. No concerns at the moment. RUT needs to go down to around 1,170 for me to defend the Put side. That's a 4% decline in RUT prices from current levels. Curiously, that's where the lower end of the uptrend channel lies this week:

(Click on image to enlarge)

October SPX 2005/2015 CPS, hedged with a Long SPY 206 Put
This is the remainder of what originally was a Lazy Elephant.
It is also my most concerning position at the moment as that 2015 short Put is showing 20 deltas. I'm not too worried in terms of its impact to the overall portfolio, as I'm playing these Lazy Elephants with smaller positions.

I will need to defend this 2005/2015 Credit Put spread if SPX reaches 2,090 or so this week. Of course, the long SPY 206 Put will be partially mitigating the damage, and also the fact that gains were already booked on the Call side. The adjustment would be deployed around 1,875 and should be enough to eclipse the losses (unless, of course, something cataclysmic happens and we are on our way to SPX 1700 later on or something like that)

Action Plan for the Week

-Let the September SPX 1980/1970 CPS expire for max profit. C'mon, this should be no problems. The Options Gods agree.

- Defend SPX 2005/2015 Credit Put spread if the index falls to 2,090 or so. I would take gains from the long 206 SPY Put and would deploy a new Credit Put spread in the 1,875 neighborhood.

- Defend the RUT 1100/1110 Credit Put spread if the index falls to around 1,170. The adjustment would be deployed around RUT 1,000. Still using October options.

- If we correct in severe fashion (I'm talking about number of stocks above 20 DMA, at or below 15%), I will deploy a Synthetic Stock Hedged position to capitalize on a possible V-Shape rebound.

Economic Calendar

Monday: China's Industrial Production
Wednesday: Crude Oil Inventories.
Thursday: Europe CPI. US Retail and Core Retail Sales. PPI. Philly Fed. Business Inventories. Industrial Production
Friday: US Core CPI. Michigan Consumer Sentiment

Options Trading results: Up +3.49% YTD vs S&P up +4.10%. Portfolio 54% invested, 46% cash at the moment.

Have a nice week folks!.

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