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Saturday, March 10, 2018

Weekend Portfolio Analysis (March 10, 2018)

This week's analysis has been published at

Download Weekend Portfolio Analysis (2018-03-10).pdf

If the above link doesn't work for you, simply log in to, 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The Weekend Portfolio Analysis will be available on this site next week for historical reference.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 2018 Track Record page

Last Weekend Analysis now publicly available:
Weekend Portfolio Analysis (March 3, 2018) 
Recent Trading Activity

- Initiated April RUT Elephant on Friday for a $1,445 net credit.

Market Conditions
(Click on image to enlarge)
Stochastics: 73 (Neutral. Up from 21)
McClellan: +159 (Overbought. Up from -7)
Stocks above their 20 DMA: 73% (Overbought. Up from 49%)

No man's land (but close to an overbought scenario)

Of course overbought does not mean it can't keep going up, just that the odds start to favor sideways or downside action. These signals are also "short-term" in nature, as our positions expire only a few weeks ahead. So, for instance if we reach an oversold condition now, it doesn't mean that the market as a whole suddenly stopped being overvalued. No. Valuations would still stretched even with a 3 or 4% decline. It would just mean that in the "short-term", an overly pessimistic environment favors the odds for some sort of rebound. In recent years, the overly pessimistic environments have preceded rebounds almost immediately, whereas the overbought conditions have persisted for longer. For this reason I started to treat the Call side carefully, first via Unbalanced Iron Condors and then with the invention of Elephants.

Looking at the technical picture, the upper red diagonal line will be tested again. With that last candle, price action looks strong enough to penetrate it. But then again, we're getting close to an overbought environment. Last week I mentioned that the SPX index was 2% below its 50-day average, leaving plenty of upside room until the 2780-2800 zone. It's now trading at 2,786. The easy part of the move is complete. Now comes the harder part: breaking that resistance and reaching the January highs again. I think it is bound to happen this year, and that has led me to keeping a few purely bullish bets in the portfolio.

VIX below 15 now. Contango re-established in the VIX futures forecasting a more peaceful market ahead. We'll see. I don't care so much about the VIX being 15 or 20 or 12, as much as I care about implied volatility being consistently greater than what is eventually realized. So, for instance if you are trading in a VIX 20 environment which becomes a VIX 30 environment, you are in a worst position (as an Options seller) than if you started positions in a VIX 12 environment that became a VIX 10 environment a month later. That said, it would be nice for the VIX to not go too low (let's say below 12), so that attractive credit can easily be obtained in new spreads we deploy.

The Russell Index:
(Click on image to enlarge)
Similar price action recently to that of the S&P. My bias is a little bullish here. I think there is still some upside here for this coming week. With RUT at 1597, the all time highs are within reach and price action around 1615 (horizontal resistance) is a real possibility.

Current Portfolio:

The SPY Calls and SVXY Calls expire in December and January of next year. Same as the Synthetic stock position, which is equivalent to being long 200 shares of SPY, but needing much less buying power. The goal with all of them is to hold them for as long as possible. They may fail, of course, but they are calculated risks. All the SPY and SVXY Calls barely add up to seven thousand dollars. Or 7% of the original 100K portfolio.

The synthetic SPY stock position occupies decent room (13.8K), but since it is the same as being long stocks, there is no way to lose all that money. For example if SPX finishes the year at 2500 (SPY 250), it would be a 14 point loss (from artificially long stock at 264). So, 14 points multiplied by 200 synthetic shares would be a $2800 loss. A similar calculation can be done assuming SPY finishes the year at 240, 230 etc. To the upside, it is also the same thing. Let's say SPX finishes the year at 3,000 (SPY 300). That would be a 36 SPY point gain from synthetically long stock at 264. Thirty six points for 200 artificial shares, would be a $7,200 gain in dollar terms.

Let's now look at the income plays.

Apr. SPX/SPY 2440/2450/2890/2900 - 290 Elephant
Net Credit: $1,608 and seven weeks to expiration
(Click on image to enlarge)
Defense line: 2535 (adjust the Put side). 2835 on the Call side (close for a small loss. Keep riding Put side, whose credit is greater than whatever loss the Call side suffers.

May. RUT/IWM 1450/1460/1670/1680 - 148/168 Elephant
Net Credit: $1,445 and seven weeks to expiration
(Click on image to enlarge)
Defense line: 1,505 (adjust the Put side). 1635 on the Call side (close for a small loss. Keep riding Put side, whose credit is greater than whatever loss the Call side suffers.

Action Plan for the Week

- Just look at both April Elephants for possible defense moves (Call side closure, or Put side adjustments). Nothing in the cards for new positions.

Economic Calendar

Tuesday: China's Industrial Production.
Wednesday: US PPI & Retail Sales.
Thursday: Philly Fed Index.
Friday: Europe CPI. US Building Permits and Housing Starts.

Take it easy folks.

If you are interested in a responsible and sustainable way of trading options for consistent income with solid risk management, consider acquiring LTOptions, my options trading system to the last detail.

Check out 2018 Track Record

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