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Friday, October 21, 2016

Weekend Portfolio Analysis (October 21, 2016)

About two months ago I explained my thesis that it would make sense for the markets to not stage neither a spectacular rally nor a severe correction prior to the elections. It is one of those rare instances in which, what makes sense actually happens. Well, after the July 8th break out, the S&P500 has been trapped inside the 2,120 - 2,195 range.


The life of neutral option traders has been easier. Since then, we have enjoyed more than 3 months of peace, leaking our wounds, recovering from losses and then some. It reminds me of the great February - August period of 2015 where selling Iron Condors and Credit Spreads was like printing money at will.

Of course, even if this hadn't been the outcome these last three months, I would have kept trading my same system mechanically, trusting its risk management capabilities and just "being there" until the next period of bonanza. It's not as if my "bias" and forecasting powers dictated my trades. They never do. My system dictated my trades, as always, overwriting whatever bias I may have. Easier said than done though. There is nothing harder than mechanically trading based on rules that tell you to initiate a neutral position when your super guts tell you the market is going higher after the next FED Meeting or any other event for that matter. I believe along with patience, the ability to not fall in love with your ever-changing bias, or recency bias is one of the toughest skills to master in the game.



Recent Trading Activity

- October portfolio Insurance expired
It met its purpose. It was there to provide peace of mind. Nothing else. Small $170 loss.


Market Conditions 
The market went from 2,132.95 to 2,141.16 for a small 0.38% gain.
The old rising wedge was broken to the downside, so I removed that old pattern in favor of a sideways zone right now:

(Click on image to enlarge)
Stochastics: 62 (neutral)
McClellan: -14 (neutral)
Stocks above their 20 DMA: 41% (neutral)

No man's land. No need to risk your underwear with directional Credit Spreads at this point.
We are now 8 weeks away from December monthly expiration. I would be entering an Iron Condor at this point. But just as an exception, I am going to wait until after the elections this time around, and then I will trade December 31 options instead of the typical monthly Options we all love.

As usual, my current positions represented by the yellow lines. They are looking great aren't they? That's why this week's tiny insurance loss doesn't matter. It really doesn't.

And here's the Russell, in which I still have the November Unbalanced Iron Condor:
(Click on image to enlarge)



Current Portfolio

NOV RUT 1110/1120/1340/1350 Unbalanced Iron Condor
$2,440 credit. 4 weeks to expiration. Very comfortable now with 8 deltas on the Put side and less than 1 on the Call side. No concerns at the moment.


NOV SPX 1970/1980 Credit Put spread (remainder of Lazy Elephant)
$700 credit. 4 weeks to expiration. 6 deltas for the short 1980 strike (quite an improvement from 11 last week). I would like to take this position off as soon as a $500 gain can be collected. I wanted $400 last week, but I've gotten greedy.


DEC SPX 1860/1870 Credit Put spread
$1,300 credit. 8 weeks to expiration. This is the position entered during the oversold environment experienced on Thursday of last week. Looking like Marilyn Monroe at the moment. At just 5 deltas and with more than 50% of the gains already made. I will keep milking it though. I have no problems holding this one through elections. No rush to take it off right now as it looks very safe and I wouldn't do anything with the free capital anyways.



Action Plan for the Week

No new positions until after the elections. That's my motto nowadays.
Apart from that Law of Nature:

- Adjust Put side of RUT Iron Condor if RUT reaches 1,165 or so. A 4%+ decline. Unlikely. But, if it happens, I would take a loss and deploy a Credit Put spread around 1,030. I would have no problem holding that one through elections day.

- Adjust 1980/1970 Put side of SPX Elephant if SPX reaches 2,050 or so. A 4.5% decline from here. Unlikely, but we must be prepared no matter what. If that happens, I would take a loss and deploy a new Credit Put spread in the 1,860 area. I would also have no problem holding that position through elections day.

- I would like to take a $500 gain on the 1980/1970 SPX Credit Put spread just mentioned above. It would be possible with a small upside move coupled with the passage of time.

- If none of the above happens, I'll just be, well, Lazy.



Forex
The LT Trend Sniper went short EURUSD at the Sunday open.
At first it looked like another frustrating entry that would lead to another quick loss. But, suddenly the Euro broke down on Thursday with decent follow through on Friday.

As of now, the Sniper has moved the Stop Loss down to 1.1000 and the most I can lose here is 0.75% of the portfolio, instead of the original 3% risk. So, all is looking great on this front. Let's see if we get more follow through in the upcoming days to finally ride a decent trend this year.




Economic Calendar

Monday: German Manufacturing PMI, US PMI
Tuesday: US CB Consumer Confidence
Wednesday: New Home Sales, Services PMI, Crude Oil Inventories
Thursday: Core Durable Goods, Pending Home Sales.
Friday: US GDP


Options Trading results: +6.71% for the year (S&P benchmark: +4.76%)
                                    Portfolio 42% invested, 58% cash at the moment.

Take it easy, but take it anyways.
LT

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