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Saturday, July 28, 2018

Weekend Portfolio Analysis (July 28, 2018)

Recent Trading Activity


Market Conditions
(Click on image to enlarge)
Stochastics: 74 (Neutral. Down from 79)
McClellan: -61 (Neutral. Down from -14)
Stocks above their 20 DMA: 42% (Neutral. Down from 57%)

No man's land

Resistance around 2800 was firmly penetrated. No more questions about it. Then we had that weakness on Friday. Overall, the market is up in respect with last week. However, all three oscillators that we follow, are lower than last week. This is a bearish divergence. Many times the precursor of some more weakness ahead. Although I try to not predict prices, or base my trading on that, my bias for this week will be "down". However, I respect the no man's land scenario in that prices can travel far in either direction as we are neither close to oversold nor overbought territories. The 2,800 level, which was resistance for the last few months can now potentially become support. Below that, is the 50-day moving average around 2,760 and then the diagonal trend line that serves as support in the low 2,700's. Chances to go below that in a week are slim and we would be in clearly oversold territory, good for an Out of the Money Credit Put spread position accompanied by an elevated VIX. To the upside, the all time high region around 2870-2875 should offer some sort of resistance and if the market goes there, I think breaking that level is unlikely to happen in just the upcoming week. We'll see!


The Russell Index:
(Click on image to enlarge)
Once again a weaker week for the Russell, which was stronger than the S&P for most of the year. Already below its 50-day avg, and with potential support in the 1615-1630 region.


Current Portfolio:
The SPY Calls and SVXY Calls expire in December and January of next year. All bullish bets on a market rebound.

Let's now look at the income plays.



Aug. SPX 2430/2440 Elephant Put side
Net credit: $1,200. Three weeks to expiration
(Click on image to enlarge)
Defense lines: 2,515 to the downside (adjust Put side). All the money has been made here. Good time to close it and not wait three more weeks. The only caveat is that, it is so far out of the money at this point, that liquidity will be an issue. Exiting at 0.00 debit, forget it. 0.05 perhaps...   0.10 would be more like it and that means leaving some money on the table. I'll see if I can get filled at 0.05 debit to close.


Aug. RUT/IWM 1500/1510 - 154 Elephant Put side
Net credit: $1,100. Three weeks to expiration
(Click on image to enlarge)
Defense line: 1,550 to the downside (adjust Put side).


Sep RUT/IWM 1530/1540/1795/1805 - 158/180
Net Credit: $1481. Eight weeks to expiration
(Click on image to enlarge)
Defense lines: 1,595 to the downside (adjust Put side) and 1,760 to the upside (Close all Calls at a loss. Keep riding Put side, whose credit is greater than the loss to be suffered on the Call side, resulting in an overall net winning trade).



Action Plan for the Week

- I'll see if I can close the August SPX Elephant Put side (only remaining part of that Elephant) for 0.05 debit. It may be a tough task.

- I'll close the Call side of the September RUT Elephant. The credit obtained on that side was $448 on entry and the gain is already getting close to $400. Closing it would give an opportunity to re-open it on a market rebound, since this position is still 8 weeks away from expiration.

- If the market reaches an oversold condition, I'll initiate a September SPX Credit Put spread in the 10-delta territory of prices.


Economic Calendar

Monday: China's Manufacturing PMI. Bank Of Japan Monetary Policy Statement and Outlook Report.
Tuesday: Europe CPI & GDP. US Consumer Confidence.
Wednesday: ADP NonFarm Employment Change. FOMC Statement.
Friday: US NonFarm Payrolls, Unemployment Rate. ISM Non-Manufacturing PMI.

Take it easy guys,
LT


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