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Sunday, November 27, 2016

Weekend Portfolio Analysis (November 27, 2016)

The SPX Index went from 2,186.43 to 2,213.45 this week, for a +1.24% return. It's amazing how when the upside pressure is so constant, everyone gets easily horny. The buying pressure is just too orgiastic at the moment and people just can't help themselves. 

Recent Trading Activity

- Initiated a DEC30 RUT Credit Call spread on Tuesday. Half size. $900 credit.


Market Conditions 
(Click on image to enlarge)
Stochastics: 98 (overbought)
McClellan: +177 (overbought)
Stocks above their 20 DMA: 82% (overbought)

We are in an overbought environment. As I've said 232,434,343 times in the past: the most dangerous environment for options sellers. Time to be really careful when deploying new positions, and there's no sin in using smaller allocations than usual when selling Credit Call spreads.

The Russell:
(Click on image to enlarge)
Still defying gravity. The perfect illustration that when the markets want to rally, nothing will stop them. Neither Trump, Fed Rate hikes nor Justin Bieber.

But, regardless of your bias, or the fact that an index like the Russell should take a pause,....there are no 'shoulds' when you go to the grocery store and need to pull out the Benjamins. Money shall always be protected by respecting price action first, and that's what we'll do.


Current Portfolio

DEC30 SPX 1990/2000/2270/2280 Unbalanced Iron Condor
$2,360 credit. 5 weeks to expiration. Put side safe at only 4 deltas. Call side taking some heat at 17 deltas. Adjustment point is around SPX 2,240. I'm not really concerned since this is an Unbalanced Iron Condor (God's greatest invention after Instagram). So, if I have to take a loss on the Call side, I will, honorably, and deploy a fully balanced spread around 2,310. That should be the end of it. The position as a whole is still making money though ($560 bucks positive)

DEC30 RUT 1180/1190/121/1390/1400 Lazy Elephant
$1,070 credit. Also 5 weeks to expiration. 25 deltas on that 1390 Call. But, here's the beauty of the Elephant and precisely what it was built for:
Despite the unfavorable run up and 25 deltas on that 1390 Call, the T+0 Line is pretty flat. I can wait until RUT 1360 - 1365 without suffering additional significant damage, even though at that point, the 1390 Call should be around 35 - 37 deltas. A close at those levels would represent only about a $500 loss, or 0.5% of the portfolio. Put side obviously comfortable at just 5 deltas.


DEC30 RUT 1410/1420 Credit Call spread
$900 credit. The position initiated this week. 15 deltas at the moment. Not nice, but I'm not overly concerned since I just played it half size. If it ends up needing an adjustment I should be able to deploy a new one around 1,450 using normal size and that would mitigate it all.


Action Plan for the Week

As you can see, all three positions are suffering some sort of pressure on the Call side to one degree or the other. However, I'm sleeping like a baby as none of them have been recklessly traded. The Unbalanced Iron Condor, well, it's unbalanced. The Lazy Elephant, well, it's an Elephant precisely to sustain absurd up moves without suffering ever increasing losses. The RUT Credit Call spread was only played with half the usual size this week. So, even if the market keeps rallying non-stop, the defense of all three positions would neutralize all the initial temporary losses. That said, let's go one by one.

- I'll defend the SPX 1990/2000/2270/2280 Unbalanced Iron Condor if SPX hits 2,240 or so. I'd be closing the 2270/2280 side for a loss and deploying a new spread around 2,310.

- I'll close the Call side of the RUT Elephant (1390/1400) if RUT reaches 1,365. That would be approximately a $1,000 loss, but it is mitigated through the $700 credit received from the Put side. I would stoically take the loss and move on without deploying a new Credit Call spread, as it is time to start reducing risk and think about January positions.

- If RUT reaches 1,380 or so, then it will be time to defend the 1410/1420 Credit Call spread. I would close it for a loss, and deploy full size (20 contracts per leg) around RUT 1,450. That should be enough to mitigate the loss, if not entirely at least to a great degree.

- On a more positive note, given all the upside risk, if the market falls a bit and gives me a chance to close Call spread positions for break-even I will do so with eyes closed. I will gladly close the Call sides of the RUT Elephant (1390/1400) and the Call side of the SPX Unbalanced Iron Condor (2270/2280) if I can do so for break even or even tiny losses. I would be leaving the Put sides on.

- Also, by Friday, I will start trading the January 2017 monthly options cycle. It's looking like a Credit Call spread right now, and that would be either the RUT 1440/1450, or the SPX 2310/2320, but if we rally even more then I'd be using even higher strike prices. On the other hand, overbought conditions may be relieved by Friday, in which case I will be trading an Unbalanced Iron Condor. 


Forex
The LT Trend Sniper system is still short the Euro and Gold. The Stop Loss has been moved to break-even in both positions so the Sniper will not lose money here. All that is left is to see whether the instruments keep making lower closing lows or not.

Euro:
The position may come to an end on Thursday or Friday if a close higher than 1.06244 takes place. Otherwise, the Trend Sniper will stay in the position one more week.


Gold:
The Sniper may close the position by the end of the week if GOLD fails to close lower than it did on Thursday at least once. Otherwise, the short position will remain until at least next week, when conditions will need to be re-evaluated.

I'm glad that both positions will be winners and with good chances of reverting the negative performance in the Forex account this year.


Economic Calendar

Monday: ECB President Mario Draghi speaks
Tuesday: US GDP, Consumer Confidence
Wednesday: Europe CPI, Draghi speaks, US Pending Home sales and Oil Inventories. China's Manufacturing PMI
Friday: US Non-Farm Payrolls, Unemployment Rate, a couple of FED Members speak.



Options Trading results: +9.03% for the year (S&P benchmark: +8.29%)
                                         Portfolio 33% invested, 67% cash.

Take it easy, but take it anyways. Good luck!
LT


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