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Saturday, January 7, 2017

Weekend Portfolio Analysis (January 7, 2017)

This week's analysis has been published at LTOptions.com

Download Weekend Portfolio Analysis (2017-01-07).pdf

If the above link doesn't work for you, simply log in to LTOptions.com, navigate to the "Weekly Analysis" tab and download the document from there.

The Weekend Portfolio Analysis will be available on this site next week for historical reference.

All currently open positions can be seen on the Track Record page
Welcome to the first Weekend Portfolio Analysis of 2017.

S&P 500 up 1.7% the first week of the year. It seems like the entire universe "knows for sure" we are going up indefinitely with Trump as president. Thus, the volatility in the main indexes is reaching low levels not seen since my grandma was a virgin. It is this type of environment (which honestly, we've had too much of in the last few years) where the index options seller must be especially careful and lower his return expectations before assuming unreasonable risks.


Recent Trading Activity

- Initiated a Feb SPX Unbalanced Lazy Elephant on Friday. Second February position and last one if we don't reach an oversold extreme over the next 4 weeks.



Market Conditions 
(Click on image to enlarge)
Stochastics: 90 (overbought)
McClellan: +64 (neutral)
Stocks above their 20 DMA: 57% (neutral)

No man's land.
Unfortunately, the short-term oversold condition was never reached and we're now back to this low volatility, soul sucking environment. Thank Allah, I don't spend my time looking at the markets all day. Anyways, we're trading near the top of the uptrend channel and the number of stocks above their 20 Day average still has room to grow a bit more. So, I'm still thinking in terms of upwards bias, but limited. Not much speed on the way up, which is always good for existing Credit Call spreads positions to not get too much heat.


Russell:
(Click on image to enlarge)
Yellow lines as usual depicting my positions. i.e. where I don't want the markets to go.


Current Portfolio

JAN RUT 1480/1490 Credit Call Spread
$1,200 credit. 2 weeks to expiration. With RUT sitting at 1,367 I have exactly zero concerns.


JAN SPX 2370/2375 Credit Call Spread
$1,600 credit. 2 weeks to expiration. 3 deltas. No pain in sight here.


FEB RUT 1200/1210/1470/1480 Unbalanced Iron Condor hedged with IWM 126 Puts
$1,874 credit (when subtracting the debit invested in the IWM Puts). 6 weeks to expiration. Looking good here with only 6 deltas on the Put side, 7 deltas on the Call side. Still some baby-sitting ahead but I'm comfortable riding this one and see no threats in the horizon. The position is starting to show some nice profits as the result of time decay:
And those vertical dashed lines (1,265 and 1,435) are the estimated spots where I would be defending the Put side and the Call side respectively this week. Both look distant enough.


FEB SPX/SPY 2115/2125/2350/2360/216/236 Unbalanced Elephant
This was the position initiated 24 hours ago, (on January 6), so, lots of baby-sitting ahead. $1,294 net credit and 6 weeks to expiration. Obviously, no concerns for now.
Again, the vertical dashed lines being the points where I'd make decisions (2,190 Put side adjustment, 2,320 take small loss on Call side and forget about it, just ride the hell out of the much more profitable Put side in that case).

The credits collected in the two Feb positions were not really attractive. Just a natural consequence of such a low volatility environment. I certainly prefer to not bring my strike prices closer to the money to increase the credit received as I was feeling they my strike prices were already close enough.


Action Plan for the Week

- Keep riding both JAN Credit Call spreads. Most of the profits have been made, so it is fine to take them off. I just think they look very safe in an already extended market.

- Do not open any new positions if an oversold condition is not reached. The oversold environment is now a bit far (in the low 2200's).

- Defend the RUT Unbalanced Iron Condor if the index reaches 1,265 (Put side adjustment) or 1,435 (Call side adjustment). With RUT at 1,367 that would require a 5% rally in a week, or an 8% fall. I think both scenarios are unlikely for just 5 trading days. We'll re-assess again next week. I am also ready to take gains on the Call side if the 1470 strike price suddenly reaches 2-3 deltas. In addition, I have a GTC Order to close the entire position at 75% of max profit. Because the Unbalanced Iron Condor was filled at 2.13 credit, my GTC limit order debit is 0.53, which would leave me a 1.60 gain (roughly 75% of max gain). Of course, more time decay is needed for the position to be worth just 0.53, but my GTC order is already in place and will stay there for a while.

- Defend the SPX Unbalanced Elephant if the index reaches 2,190 (Put side adjustment) or 2,320 (just close Call side for a small loss and ride the Put side)


Economic Calendar

Sunday: China's CPI
Wednesday: US Crude Oil Inventories
Thursday: US Federal Budget Balance
Friday: US Retails Sales, Michigan Consumer Sentiment


Take it easy folks,
LT


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Check out 2017 Track Record


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