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BookingAlpha Option Trading Advisory

Saturday, July 12, 2014

Weekend Portfolio Analysis (July 12, 2014)

The S&P500 went from 1984.22 down to 1967.57 this week, for a 0.8% loss. There was a little spike in volatility and I managed to close the Jul/Aug Double Calendar spread for a small profit. Other than that I didn't add new positions during the week.

Market conditions
(Click on image to enlarge)
Stochastics: 47 (neutral)
McClellan: -120 (neutral)
36% of stocks are trading above their 20 Day Moving Average (neutral)

Lots of neutrality here. To me this is no man's land and I'm waiting for a clearer oversold extreme before opening a new August position. A -1% move this week could take us there and then I will sell out of the money Put spreads. Most likely using IWM (103/101 spread for at least 0.12 credit).

July Positions
SPX 1735/1740/2010/2015 Iron Condor 92% probability of success. I now think this fight has been won. And I'm not concerned with the Call side of this Iron Condor anymore. The SPX would need to move up 43 points before Friday morning, and although nothing is impossible, I think that's an unlikely scenario.

SPX 1805/1810 Put spread Very comfortable. No concerns here.

August Positions
RUT 1050/1060/1260/1270 Iron Condor. 87% probability of success and the index is sitting right in the middle of the profitability range (1160). That is as good as it gets. There's nothing to do here other than keep babysitting the position.

Action plan for the week
All July positions will be left to expire worthless. They are all comfortable and unlikely to be threatened in the next 6 days. July will end up being a discreet month of around +0.5% return for the portfolio. This is because I had to adjust the 1975/1980 Call spread side of the SPX Iron Condor and that always causes a temporary loss. But that's ok. It is always a victory to pull off a positive return for a month when you start on the wrong foot with a threatened and adjusted position. If all the months where one of my credit spreads went wrong I were able to finish the cycle with positive returns, I would be more than happy. A sequence of 2 or 3 months should be about to happen where I nail them without any necessary adjustments.

August is looking pretty good right now, and there's no rush to enter a new position. If the market doesn't reach an oversold or an overbought extreme this week, I'll do exactly nothing. If it does (currently closer to an oversold short term extreme) then I will sell a credit spread against the prevailing short term trend at the moment. As usual, using the first strike with a 10% probability of being in the money by expiration. Haven't decided on the symbol yet, but if it is an oversold extreme, it will most likely be IWM.

Economic Calendar
Tuesday: US Retails sales. Chinese GDP and Industrial Production
Wednesday: US PPI
Thursday: Building Permits, Housing Starts, Philly Fed

Good luck this week folks!

Check out 2014 Track Record

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  1. Last week was the biggest down week in S&P since April. It’s hard to believe that it was down less than 1% and it is making headlines.

    SPX might be no man’s land but my 4% rule on RUT/IWM kicked in last week. This was the trigger that I needed to sell the September IWM 103/101 credit put spread for .15 credit. I will look to add to this position by collecting .20 credit in the coming days if IWM touches the 50-day moving average again. I missed my opportunity to do this last week when it touched the 50 day because I hesitated for a few minutes and the .20 credit was gone.

    I am still waiting for SPX/SPY to go into an oversold condition before selling some September credit put spread. For it to happen, I need to see SPX go down to 1925 which represents a 3% drop from its recent high of 1985. I believe we might touch 1925 this month. If not, I will just sell a September iron condor on SPX/SPY.

    Why do you want to open an IWM position in August if we get oversold next week since you already have an August RUT iron condor? I think it is better to sell September IWM credit put spread since you can go even lower like the 100/98 credit put spread.

    My current positions:


    IWM 95/93 credit put spread
    IWM 123/125 credit call spread


    IWM 105/103 credit put spread
    IWM 126/128 credit call spread
    SPX 2025/2030 credit call spread


    IWM 103/101 credit call spread (opened last Tuesday when IWM was 4% lower than its recent of 120.90)

    1. Correction: The September IWM position should have read 103/101 credit put spread. Not credit call spread. My bad.

  2. The 103/101 IWM Credit put spread looks indeed pretty good for you. And would be my candidate if we reach a short term oversold extreme (as measured by the indicators I follow) .
    The idea of using September options, mmmm,....I think there's still some decent time decay in August, although your suggestion is not a bad idea at all. We'll see. As of now I lean more towards Aug. we'll see if the market takes longer than a week to reach the oversold extreme.

    Your positions look comfortable right now. You probably felt some heat with the 123/125 IWM Credit Call spread, but things are looking good now for you. Hope you do well in all those positions. This year has been chalLenging, almost as much as 2013. With the difference being, we've been prepared for a similar movie this time. So it hasn't caught us of guard.

    Thanks for the comments and good luck.

  3. Hi LT and Jonathan
    Another good week for us option sellers.
    LT, congratulations on the timing selling your double calendar. You played it just right. In the past when I experimented with calendar spreads, I would place automatic sell orders because you never know when the volatility might pop. Often the window is not open for long.
    I have been fortunate in the timing of my JUL trade entry, and if all goes well I can close tomorrow with a gain close to 4% for the month. You are spot on when you mention stringing a few simple months together. My experience has been a plateau for several months where I work too hard, worry too much, and make adjustments just to limit losses. Just when I start to question that option trading is not my thing, I will string several simple months together and rise to a new plateau. So hang in there.

  4. That's true Dave. And in my journey to conquest the lazy trading style, I should really leave a pending sell order good till cancelled for calendars. So, I don't have to be monitoring the market throughout the day. I'll do so next time. Thanks for the suggestion.


  5. My July 123/125 was definitely under pressure two weeks ago. But I am fine now. I will start to build the SPY September position this Friday.