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Friday, November 23, 2018

Weekend Portfolio Analysis (November 23, 2018)

Recent Trading Activity

- Initiated an SPX January 2019 Credit Put spread. As announced earlier in October, the Weekend Portfolio Analysis articles will come to an end at the end of this year. I'm only mentioning this 2019 trade for the sake of completeness, but it will not be included in the remaining articles.

Market Conditions
(Click on image to enlarge)
Stochastics: 6 (Oversold. Down from 33)
McClellan: -34 (Neutral. Down from +36)
Stocks above their 20 DMA: 36% (Neutral. Down from 51%)

No man's land

Thanksgiving week. Usually a strong week, certainly strong in recent years turned out to be a -104 point week for the S&P500. Despite one day of inactivity and another one of just half a session, with very little volume. The environment is certainly different. I've been thinking, man, I've been so used to dealing with a permanent Bull market, barely any sell-offs and constantly low volatility that perhaps it is the time to shine right now trading options. In spite of the terrible year I've had in this arena. We now have very high volatility and constant two-side action. Rallies don't last for too long. Weakness has persisted lately but it gets bought every now and then.

The G20 meeting is getting close (Nov 30). Trump will probably say that he had "fantastic" meetings with leaders of the most powerful nations of the globe, possibly including China and this may bring some calm momentarily. Obviously, the reality is that both countries seem far from a Trade Agreement, despite how much both sides have to lose. We are in the historically most bullish period of the year, decent earnings have been reported and yet the markets have been shaky for weeks now. The air has changed.

I'm still thinking we are close to oversold short term, and a bounce is getting close. Technically speaking we are getting close to the 2,600 area. A level of support I didn't think would be broken in the rest of 2018 but the market seems to just be dead, having organized down days, with barely any news, but just price action little by little digesting index gains with barely any uptick. I still favor a rebound around 2,600. But regardless, with an elevated VIX above 21, an Options seller can position himself really far down with 2019 positions that look more and more attractive. To the upside, I just think it is dangerous now to sell Calls. The most attractive ones are not too far above the main moving average, and higher than that it is just too little premium to make now.


The Russell Index:
(Click on image to enlarge)



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 rest of the positions



Dec RUT 1350/1340 Credit Put spread
Net Credit: $1400. Four weeks to expiration
(Click on image to enlarge)
Defense line: 1410. Adjust Credit Put spread down.


Dec SPX/SPY - 2490/2500/2910/2920 - 257/292 Elephant
Net Credit: $1513. Four weeks to expiration.
(Click on image to enlarge)
Defense lines: 2,595 to the downside (adjust Put side). 2875 to the upside (Close entire Call side at a loss. Keep riding Put side, whose credit is greater than any loss to be suffered on the Call side, resulting in a net winning position in the end).



Action Plan for the Week

- Carefully watch the Put side of the SPX Elephant for potential adjustment.


Economic Calendar 

Monday: ECB President Draghi speaks. 
Tuesday: US Consumer Confidence.
Wednesday: US GDP, New Home Sales.
Thursday: Pending Home Sales. FOMC Minutes. China Manufacturing PMI.
Friday: Europe CPI and Unemployment.

Good luck this week folks,
LT


Check out 2018 Track Record


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