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Saturday, October 21, 2017

Weekend Portfolio (October 21, 2017)

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

Download Weekend Portfolio Analysis (2017-10-21).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The Weekend Portfolio Analysis will be available on this site next week for historical reference.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 (October 14, 2017) 
Recent Trading Activity

- Initiated an December SPX Unbalanced Iron Condor position on Thursday for $1,500 credit.

- Put side of October RUT Elephant expired for max on Friday. A $1,100 gain.

- Put side of October SPX Unbalanced Iron Condor expired for max on Friday. A $952 gain.


Market Conditions
(Click on image to enlarge)
Stochastics: 92 (Overbought. Up from 88 last week)
McClellan: -15 (Neutral. Down from +26 last week)
Stocks above their 20 DMA: 59% (Neutral. Down from 67% last week)

No man's land.

Believe it or not, week after week the market moves up a little, then a little more and yet at no time have we had an overbought extreme (according to our definition of what that extreme is). This week we have an interesting phenomenon and it is the fact that both the McClellan oscillator and the Numbers of Stocks above their respective 20-day average is smaller than the previous weekend. Interesting bearish divergence, signaling the possibility of some weakness or at least sideways action.

Technically speaking, the index is now 3.13% higher than its own 50-day average. That's pretty significant already. Readings of 3.5% or higher have usually marked extremes in the past (unlike Russell, which can travel 6% and 7% higher than its 50-day average). Additionally, current price action is getting close to the first layer of resistance in the uptrend channel, making the 2590-2600 region a good ceiling for the upcoming week.

The continued uptrend this year has certainly been a challenge for active traders. However, our overbought condition definition has worked perfectly, not signaling an overbought extreme even once in the entire year. This has kept us away from selling individual Credit Call spreads. As it is the case now: a no man's land condition indicates that it is not an ideal time to sell individual Credit spreads on one side of the market.

The Russell:
(Click on image to enlarge)
Only one position here. Although less than before, RUT is still significantly higher than its 50-day average at +4.82%. This of course leaves now some upside room but not enough to endanger our current position here.


Current Portfolio

NOV SPX 2315/2325 Credit Put spread
Net Credit of $1,000. Four weeks to expiration. The remainder of what used to be an Unbalanced Iron Condor. Looking very healthy at the 3-delta mark.
(Click on image to enlarge)

Defense lines: 2,375 (adjust Put side). That's so far down that I'm willing to keep holding this for a while longer.


NOV SPX 2425/2420 Credit Put spread
Net Credit $250. Four weeks to expiration. Small position of ten 5-point wide spreads.
(Click on image to enlarge)
Because of the small size (only one fourth the typical size), we can afford to delay the adjustment until SPX 2,430. With SPX at 2,575 I have no concerns here.


NOV RUT 1380/1390/1580/1590 Unbalanced Iron Condor
Net credit: $1,555. Four weeks to expiration. Some good progress was made this week here: The T+0 line nicely moved up a little and price is still pretty much centered. No concerns for now.
(Click on image to enlarge)
Defense lines: 1,430 to the downside (adjust Put spread) and 1,575 to the upside (adjust Call spread). Both price points are unlikely for the upcoming week. This is a very healthy position to keep riding and price is centered ride there on the upward slope of the pink line.


DEC SPX 2390/2400/2635/2640 Unbalanced Iron Condor
Net credit: $1,555. Eight weeks to expiration. This is the first position on the December expiration cycle, entered just 48 hours ago. Lots of baby-sitting ahead.
(Click on image to enlarge)
Defense lines: 2,470 to the downside (adjust Put side) and 2,630 to the upside (adjust Call side).


Action Plan for the Week

- Given that November positions are looking so good, the focus will be on the December SPX Unbalanced Iron Condor. With an upside adjustment point at 2,630 I'm not too concerned for this week. I think 2,630 is a tall order for SPX in just 5 more trading sessions. However, that doesn't mean we can't do other things if the market keeps going up. So, here's my plan: if SPX keeps going up and the 2,635 short Call reaches 30 deltas (SPX probably around 2,600 or so), I will sell a small (1/4th normal position) Credit Put spread at 10 deltas. That will likely be situated around SPX 2,450 or perhaps just a little higher. It may also be a good time to sell a small Credit Call spread (five 10-point wide spreads around the 2,680 strike price) if the credit is decent (0.90 for a 10-point wide or 0.45 for a 5-point wide). We'd be collecting, in other words small credits at a safer strike price in case of the Call end, but we wouldn't exit the existing 2635/2645 Call spread at a loss unless SPX reaches 2,630.

- I’m still interested in deploying a November SPX 2630/2635 Credit Call spread, which completes an Unbalanced Iron Condor with the existing Nov 2315,2325 Put side. I’m less willing to add this hypothetical call side at poor credits of 0.40 or less. On a good rally I may add it. Conservative of course, very small size as I don’t want to play with fire so late in the year.

- As usual, we are now in waiting mode for an oversold condition. If it happens, I'll go with a December RUT Credit Put spread around 10-deltas. Otherwise, no new trades until the end of next week, where we'll consider entering an Elephant position.

So, it's a pretty simple action plan this week with a good chance that no action will be necessary at all.



Economic Calendar

Tuesday: German ZEW Economic Sentiment. Europe's CPI
Wednesday: Durable Goods. New Home Sales.
Thursday: ECB Press Conference. US Pending Home Sales.
Friday: US GDP and Michigan Consumer Sentiment & Expectations.

Good luck this week folks,
LT


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Check out 2017 Track Record


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