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Saturday, April 8, 2017

Weekend Portfolio Analysis (April 8, 2017)

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

Download Weekend Portfolio Analysis (2017-04-08).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The Weekend Portfolio Analysis will be available on this site next week for historical reference.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


Last Weekend Analysis now available: Weekend Portfolio Analysis (April 1, 2017) 
Recent Trading Activity

- Initiated a May RUT Unbalanced Elephant on Monday. Net credit $1,416. All the details here. In the previous weekend analysis, the plan was to use an Unbalanced Iron Condor and yet I ended up playing an Elephant (the second one with May expiration options). I simply fear a rally. Yes, this is "personal bias" influencing my decisions and not being totally mechanical. I get that. But I think it is unavoidable after seeing rallies out of nothing, hurting us for so long. Because RUT is below its 50-day average, it has a lot of room to run. Playing the Elephant provides less credit (Could have obtained $2,200-$2,400 for the Unbalanced Iron Condor), but it is in exchange for upside peace of mind in that, we will have a winning position if the market rallies beyond what anyone expects, while the downside loss is similar to that of the Unbalanced Iron Condor. SPX was above its 50-day. I could have gone with an SPX Unbalanced Iron Condor, to stay loyal to the ideal of "one Unbalanced Iron Condor and one Unbalanced Elephant per month" (Read 2017 Trading Plan here), but the strike prices of choice would have added too much risk concentration in similar spots to those of the existing May SPX Elephant that was initiated almost two weeks ago. So, I definitely wanted to go with RUT.

Market Conditions
(Click on image to enlarge)
Stochastics: 45 (down from 75 last week) (neutral)
McClellan: +42 (down from +107 last week) (neutral)
Stocks above their 20 DMA: 51% (down from 63% last week) (neutral)

No man's land.
SPX was down 7 points for the week. Barely 0.3% from close to close. Yet the indicators changed nicely. Not even 50 something missiles in the Middle East move these markets anymore. Well, as long as they remain quiet we'll be making out like bandits. Even with VIX levels below 13.

Four positions in the portfolio and that's pretty much the maximum risk I'm willing to carry at any given time. If I didn't have anything on, I would be looking at a neutral position next week. Either an Elephant or an Unbalanced Iron Condor, and considering June options. But, that's not the case. There is a lot of inventory to take care of at the moment.

And here's the Russell 2000, where two Elephants are in play:
(Click on image to enlarge)
 

Current Portfolio

APR SPX 2175/2180 Credit Put spread
Used to be an Iron Condor until the 2455/2460 was taken off the table. $960 credit on the remaining Credit Put spreads. 2 weeks to expiration. Very comfortable at the 2-delta mark. No concerns. I would like to close it early, but being near expiration and so far out of the money, the market makers will for sure give me a hard time getting filled here.


APR RUT/IWM 1260/1270/1450/1460/129/146 Unbalanced Elephant
$1,396 net credit, 2 weeks to expiration. Looking solid. Almost a thousand dollars in open profits and no real concerns on either side of the prices spectrum.

Defense lines set around $1,305 to the downside (adjust Credit Put spread) and $1,430 to the upside (close Call side for small loss and ride the Put side to expiration to obtain an overall net gain despite the Call loss).


MAY SPX/SPY 2150/2160/2440/2450/221/245 Unbalanced Elephant
$1,529 net credit, 7 weeks to expiration.

Defense line is $2,235 to the downside (adjust Credit Put spread) and $2,390 to the upside (close Call side for small loss and ride the Put side to expiration to obtain an overall net gain despite the Call loss). Basically the same lines shown here last week.


MAY RUT/IWM 1230/1240/1450/1460/126/146 Unbalanced Elephant
The position initiated less than 24 hours ago. Net credit: $1416. Six weeks to expiration.

Defense lines: 1,300 and 1,420. These areas are pretty close to those of the April RUT Elephant (1,305 and 1,430). So, there is obviously some concentration of risk here. If the market rallies past RUT 1,420 it is not a big deal as we just close both Call sides and still end up with winning positions. However, if the market falls, down to RUT 1300-1305, then we face losses in both positions at the same time, and the kind of losses that, even after successful adjustments end up with overall negative balances. Therefore, it is time to do something about this.



Action Plan for the Week

- I'll try to close the April RUT Elephant to remove risk concentration, especially concerning to the downside. Now, given the low probability of RUT hurting me (1300-1305), I am not in super rush mode to close the position. The max potential gain is $1,396 at expiration. This week I'll be happy exiting with $1,100-$1,200 in my pocket.

- If closing the April RUT Elephant for the desired gains is not possible, then the game plan is to adjust the Put side if RUT reaches 1,305 or close the Call side if RUT rallies past 1,430.

- Adjust Put side of May RUT Elephant if RUT reaches 1,300. Close the Call side if RUT rallies past 1,420. Do nothing with this position if RUT stays in between the defense lines.

- As for the May SPX Unbalanced Lazy Elephant, close the Call side if SPX reaches 2,390. This includes the 2440/2450 SPX Credit Call spreads and the SPY Long 245 Call contracts. Closing it all for a combined loss of around $800 would allow us to make money through the Put side and its $1,300 credit, eventually resulting in a net $500 gain.

- As for new positions: no plan to open anything new, except if I'm able to close the April RUT Elephant first and after that, we reach an oversold condition. In that case I will be selling an Out of the Money RUT Credit Put spread using May expiration options. 10 deltas, 10-point wide, looking to obtain 0.60 credit or better.



Economic Calendar
Tuesday: China's CPI & PPI.
Wednesday: US Federal Budget Balance. It looks like the Crude Oil Inventory reports are having less of an impact nowadays as they did last year. So, I will stop mentioning them in this section for now.
Thursday: US PPI & Michigan Consumer Sentiment.
Friday: US Retail Sales & Core CPI.

Good luck this week folks,
LT


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Check out 2017 Track Record


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