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BookingAlpha Option Trading Advisory

Saturday, January 19, 2013

Weekend Portfolio Analysis (01-19-2013)

I closed the RUT 890/895 February Credit Call spread yesterday, for 2.60 debit. Initially sold for 1.80 credit, that represents a loss of 0.80. In 5 contracts per leg that's a $400 loss. I decided to open another Call Credit Spread in February, that's what many would call an adjustment.

 I could have tried to get a better credit by opening 895/900 or 900/905 but I'm tired of getting burned by RUT. So, I said, look it, it's early in the year, the portfolio is down -8%, there's time for recovery just move on and play it as you would if you were entering a trade for the first time and not as part of an adjustment. So, I ended up doing the folowing:

SELL 920 February Call @2.60
BUY 925 February Call @1.80
Credit: $0.80 (0.80 * 100 * 5 = $400)
Margin: $4.20 (4.20 * 100 * 5 = $2100)

Break-even point: 919.20 (Around 889 when I opened the trade)
Probability of success: 77.61%
Days to expiration: 27
Max return on margin: 19.05%
Commissions: $15.00 (Assuming a very unfavorable $1.50 per contract)

All right moving on to the weekend analysis.
SPX went from 1472.05 to 1485.98 for a 0.94% gain this week. So, we keep going up, slowly and painfully for option premium sellers.

The SPY 134/132 Put Credit Spread expired on Friday for a small $242 profit.
The January expiration cycle is now over and I did terrible. -7.58% before commissions, and down -8.21% after commissions. Tough start this year.

There are two positions on the February expiration cycle.
The SPX 1520/1525 Bear Call Spread is looking like this:

(Click on image to enlarge)
Temporary +$25 profit. Probability of success at expiration 74.90%. Still comfortable, not too concerning.

The other position in February is the RUT 920/925 that I talked about already. Some decent room for that one, so not too concerning by now.

Plan for the week

The January SPX 1520/1525 Bear Call Spread is not likely to be touched by me this week. My adjustment point here is 1518 which I believe to be unlikely to happen in the next few days.

The RUT 920/925 Credit Call Spread shouldn't be affected this week. My adjustment point here is 918.

If we get a significant down day -1% or -2% I will sell a Bull Put spread on SPX. Probably selling the 1400 strike or another one around it.

Market conditions right now

Still at the upper end of the uptrend channel.

(Click on image to enlarge)
 We're past resistance here now, and again people start to believe the market is unstoppable. I think it is strong, you've got to give it credit. I just don't think we can go straight up like this until the end of the year without any retracement.

Stochastics at 93, very overbought. (96 last week)
McClellan at 128 is not overbought. (122 last week)
78.83% of stocks are above their 20 SMA (80.59% last week)
84.98% of stocks are above their 50 SMA (83.62% last week)

We're obviously overbought. As we've been for the last two weeks. That's why I think that if we keep going up it will be slowly.

The CBOE Equity Put/Call ratio closed at 0.54, a bullish extreme. When everybody turns bullish the top is getting close.

Possible high impact news this week:

US Markets closed on Monday

Tuesday: 10am Existing Home sales
Wednesday- Thursday: Flash PMIs for China, Europe and the US
out Wednesday night

Good luck this week folks!

Check out Track Record for 2013

Related Articles:
Managing RUT Options positions

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  1. I, for now, am out from selling calls until some bear signal bar appear or fundament change. This look to me a lot like market which is not exhausted yet and has room to move higher. It’s a result of unlimited QE. Fed is printing like there is no tomorow, same with BoJ today, and ECB is ready to buy junk government bonds en masse if necessary. SPY is poised to test all time high resistance this year and implied vol is lowest since 2007 resulting in extremely low option premium. That's really terrible market for naked call and credit call spread sellers.
    Hopefully, you have enough cushion within your possition. Wish you to do well and thanks for this great blog! :)


  2. Thanks for your comments Jay! Yes, definitely a tough year for Option premium sellers. Will see, there's a long road ahead till the end of the year.