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Sunday, August 13, 2017

Weekend Portfolio Analysis (August 13, 2017)

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

Download Weekend Portfolio Analysis (2017-08-13).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The Weekend Portfolio Analysis will be available on this site next week for historical reference.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 publicly available: Weekend Portfolio Analysis (August 5, 2017) 
Recent Trading Activity

- Initiated a September RUT Unbalanced Elephant for a total credit of $1,393 on Tuesday. Not great timing as the Russell reached an oversold condition just a few hours later.

- Initiated an October RUT Credit Put spread position for $1,200 credit on Thursday after the market reached the first oversold condition of the year. I didn't mention this idea during the Weekend Analysis because we've been conditioned to not expect oversold environments for so long. But, basically, every time there is an oversold extreme, I will initiate a Credit Put spread.

- Closed SPX 2550/2560 Credit Call spread side of the September Unbalanced Iron Condor for a $350 profit on Friday. This was the result of a GTC (Good Till Canceled order) I had for 0.10 debit per spread. It got triggered while I was away from the PC.

Market Conditions
(Click on image to enlarge)
Stochastics: 16 (Oversold. Down from 64 last week)
McClellan: -207 (Oversold. Down from -41 last week)
Stocks above their 20 DMA: 25% (Oversold. Down from 44% last week)

Oversold extreme.
For the first time this year, all three oscillators are simultaneously in overly pessimistic territory. It is crazy that it took until August and 10 months since the last one (US Election Day). Although more downside pressure may be in the cards, generally these conditions have improved the odds for a rebound in the past. VIX above 15 making the options selling business more attractive. This is the time for out of the money Credit Put spreads to shine.

Technically speaking the Index is right at support on the lower end of the uptrend channel that goes back to December of last year. If broken, I expect horizontal support around 2400-2410 this week. If that fails, then the lower end of the longer-term uptrend channel around 2,390.

The Russell 2000:
(Click on image to enlarge)
A September Elephant was added this week, and then an October1200/1190 Credit Put spread. There is enough downside exposure here and the Put side of the  September Elephant is taking some heat. The October Credit Put spread looks comfortably far out of the money and the August Elephant is still healthy despite this week's sell off.

Apparently the whole sell-off was related to war threats between the US and North Korea. This is the kind of topic that usually does not affect the economy at all, and therefore the markets long term prospects (unless actual nuclear warheads end up being thrown somewhere, which is unlikely). For a long term investor, it is no time to panic and long term positions in solid companies or indexes don't need to be cut. However, as Options traders we put on a different hat because of that thing called "expiration". We are not betting that the markets will be higher in 20 years than they are today. Instead, we are betting that the S&P500 will not go 3% lower, or whatever the distance is, in the next 3 weeks, 4 weeks, etc. Those kind of bets can actually lose, despite the prospects of a healthy economy being unchanged. So, we may need to close Credit Put spreads at a loss, even knowing that the markets should rebound sooner than later, as that rebound may take place post expiration of our short-term bets.


Current Portfolio

AUG RUT/IWM 1290/1300/1490/1500/132/150 Unbalanced Elephant
Net Credit: $1,418. One week to expiration.

(Click on image to enlarge)
Defense lines: 1,320 to the downside and 1,475 to the upside. Based on the probabilities, last week this looked like a sure winner. It is still healthy, despite the sell-off, and we should be near a short-term bottom already. Most of the gains have been made so, more conservative traders can close it all at the beginning of the week. I still haven't made up my mind yet. I personally think that Friday bar market a temporary bottom and futures can be up a "million points" on Sunday night. That will reinforce my idea to hold until expiration. If, on the other hand I see weakness early in the week, I will be more inclined to closing the position early, but in that case I would leave the Call side open to save on commissions.


SEP SPX 2300/2310 Credit Put spread
Net Credit: $1,100. Five weeks to expiration. Remainder of what originally was an Unbalanced Iron Condor.

(Click on image to enlarge)
Defense line: 2,385. The short 1310 Put option at 16 deltas starting to take some heat.


SEP RUT/IWM 1310/1320/1475/1480/133/148 Unbalanced Elephant
Net Credit: $1,393. Five weeks to expiration.

(Click on image to enlarge)
Defense lines: 1,360 to the downside (adjust to the new 10-delta strike) and 1,445 to the upside (close entire Call side at a loss and keep riding Put side)


OCT RUT 1200/1190 Credit Put spread
Net Credit: $1,200. Ten weeks to expiration.

(Click on image to enlarge)
Defense line: 1,265.


Action Plan for the Week

- Sept SPX 2300/2310 Credit Put spread: close for a loss and deploy new spread if the 2310 Put reaches 30 deltas. That may happen with SPX roughly reaching 2,385 (currently 2,441). The new spread would be deployed around SPX 2,180 which would be a very comfortable distance.

- Defend the September RUT Elephant when/if the 1320 Put option reaches 30 deltas. That will likely happen with RUT reaching 1360 (currently 1,374).  I'd be closing the 1320/1310 Credit Put spread at a loss, and the IWM 133 long Puts for gains. Then a deployment of a new Credit Spread in the low 1200's would follow. Same expiration. This is currently the weakest of all positions.

- Let the August Elephant expire on Friday. If I see significant weakness early in the week, I will close the Put side for gains and ride the Call side to expiration.


Forex
The LT Trend Sniper system is still riding the long EURUSD position initiated on July 12
The robot will exit the position this week if a close above the August 3rd's close (1.18684) does not take place in the next two daily candles. There will also be an exit if a close lower than 1.1751 (August 8th close) occurs. Regardless of the exit rule applied, this will be a nice gain at this point and the Fx account is up around 10% for the year. Easily beating the -1.85% posted by the Barclay Systematic Traders Index year to date.
Sniper results tracked here.


Economic Calendar

Sunday: China's Industrial Production.
Tuesday: US Retail Sales.
Wednesday: Building Permits. FOMC Meeting.
Thursday: Europe's CPI. Philly Fed.
Friday: Michigan Consumer Sentiment.


Be wise my friends.
LT


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Check out 2017 Track Record


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