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Saturday, August 9, 2014

Weekend Portfolio Analysis (August 9, 2014)

If you were feeling bored in the past, you can't complain about the last two weeks in the American markets. I hope the recent decent price action and higher volatility are making you a happier person.

The SPX Index went from 1926.62  to 1931.59 this week. That's a +0.26% gain. Didn't you notice the world didn't end? For the financial media the sky is always falling when markets go down, and there is always "more to come". Which reminds me of an article I wrote back in 2011 about The Media and Markets' noise at a time when this site barely had 10 or 15 visits per day. There are people making six digits a year for showing up on financial shows to tell the world their opinions on the markets. Hint: They don't know any better.

Last week I said I would play defense. Meaning no new positions and that I would just shift my focus to defending the existing ones if it became necessary. I kept my word, which resulted in me not writing a single article for you, my reader, in the last 7 days. I know you miss me when that happens. Such is life.

Market conditions
(Click on image to enlarge)
Stochastics: 18 (oversold)
McClellan: -67 (neutral)
37% of stocks above their 20 SMA (neutral)

Solid bull candle on Friday to defend the lower boundary of the uptrend channel that began in November 16, 2012. Extreme short term oversold conditions were relieved and now this is more of no man's land here. Although it's technically no man's land we're obviously closer to a short term oversold extreme than to an overbought one. I think there's way more upside room than to the downside. I'm totally against selling Call Spreads at this point. I know I won't do it. Out of the money Put spreads in September or October are still fine. Volatility is still decent and you can play for example a 1750/1760 Credit Put spread with almost 90% probability of success and just 6 weeks to expiration. That's 170 points below current price (Almost 9%).


August Positions
RUT 1050/1060/1260/1270 Iron Condor. 99% probability of success, up from 88% last week. This position will expire this week for max profit unless something truly drastic happens in the planet.

SPX 1815/1820 Bull Put Spread This is also a sure bullet. Should expire this week without problems.

August is going to be a solid month for the portfolio. And the performance year to day will improve from +9.44% to +13.48% on Friday. Which is a decent +20.22% annualized. Less than I dream of, but undeniably decent.


September Positions
RUT 980/990 Bull Put Spread. 97% probability of success. This one has been very easy to ride from the beginning.

SPX 1815/1820/2065/2070 Iron Condor. 79% probability of success. Up from 68% last week. This is currently the only position that I'm taking care of closely. The 1820 short Put is showing a 19% probability of being in the money. Which is not bad, but could quickly spike up to 30% if SPX goes down to the 1885-1890 area.


Action plan for the week
I'll let August positions expire worthless for full profit this week. Doing nothing has never been more fun.

As for the September SPX 1815/1820/2065/2070 Iron Condor. If the market falls (presumably the 1885-1890 area) I'll make an adjustment to the Put side. I'll close the 1815/1820 spread for a temporary loss and will deploy capital in the 1700-1690 area. I don't think we'll see SPX 1885-1890 values this week, but anything can happen. If that decline doesn't take place, I'll be a happy camper riding this position as is.

As for new trades I would consider completing an Iron Condor with the RUT 980/990 Bull Put Spread if this rebound gets stronger and we rally +3% from here. With RUT around 1160 - 1170, I would consider selling a 1230/1240 Call Spread with September options. But if that doesn't happen, I'll be more than happy doing nothing.


Forex
The LT Trend Sniper System has been in a short EUR/USD position since July 17.
(Click on image to enlarge)
It entered the position that day after price made a new 70 day closing low. The trade has progressed favorably and it is showing an almost +4% portfolio return at this point. If the EUR/USD closes above 1.3426 this week, the system will close the trade as that would be a new 8 day closing high. It would still represent a 3% portfolio return which is not bad.

If you're interested, the progress of this trade can be followed live at http://www.myfxbook.com/members/thelazytrader/lt-trend-sniper/929036. Scroll down to the Open Trades tab and you'll see something like this.
(Click on image to enlarge)

I haven't released this robot to the public yet. I wanted to have plenty of time to paper trade it and fix all the possible bugs in its execution. The strategy has not changed at all since I originally designed it. The only thing that has changed is the internal code of the robot in the MQL language to fix some execution bugs. After more than a year and a half testing this baby, I'm pretty confident to start using it with real money. Now I'll just need a decent broker as Alpari-UK recently stopped accepting Canadian clients. Finding decent spot Forex brokers is harder than winning the lottery. 


Economic Calendar
Wednesday: Chinese Industrial Production, US Retail Sales
Thursday: European CPI and GDP
Friday: US PPI

Good luck this week my friends!

Check out 2014 Track Record


Go to the bottom of this page in order to see the Legal Stuff

9 comments:

  1. “There are people making six digits a year”

    We say six figures in the states.

    “I think there's way more upside room than to the downside. I'm totally against selling Call Spreads at this point. I know I won't do it.”

    I am not going to sell credit call spreads until we hit 1200 on RUT and 2020 on SPX. Most traders overestimate how far we will go down but underestimate how much we can go up. As a credit spread trader, I fear a market going up slowly but for a long time than a market going down quickly but for a shorter time. I rather be in credit put spreads than credit call spreads.

    “August is going to be a solid month for the portfolio. And the performance year to day will improve from +9.44% to +13.48% on Friday.”

    This is amazing. You are beating the S&P 500 with this performance. Kudos to you.

    “If the market falls (presumably the 1885-1890 area) I'll make an adjustment to the Put side. I'll close the 1815/1820 spread for a temporary loss and will deploy capital in the 1700-1690 area.”

    I will wait for the market to fall to 1850 before making an adjustment on my September 1825/1820 credit put spreads. I will wait for IWM to fall to 105 before adjusting my IWM positions (see below for details). I am willing to tolerate a larger drawdown than you by waiting longer.

    “As for new trades I would consider completing an Iron Condor with the RUT 980/990 Bull Put Spread if this rebound gets stronger and we rally +3% from here. With RUT around 1160 - 1170, I would consider selling a 1230/1240 Call Spread with September options.”

    I would wait until RUT is approaching closer to 1200 before selling credit call spreads. I rather be sooner to sell credit put spreads and be later to sell credit call spreads. I just don’t like selling credit call spreads as much as I like selling credit put spreads.

    My IWM positions:

    August IWM 105/103 credit put spread (will let expire for max profits)
    August IWM 117/118 debit call spread (will let expire for max loss)
    August 29th IWM 104/102 credit put spread
    September IWM 103/101 credit put spread
    September IWM 98/96 credit put spread
    September IWM 116/117 debit call spread (will close for 100% gain if we rally to 115 or higher this month)
    October IWM 95/93 credit put spread

    My SPX positions:

    September SPX 1825/1820 credit put spread (watching this closely for an adjustment)
    September SPX 1750/1745 credit put spread
    September SPX 2055/2060 credit call spread (sitting pretty now)
    October 1725/1720 credit put spread

    ReplyDelete
  2. Well, frankly I have heard both up here in Toronto (6 digits and 6 figures). Although, half the population in this city is immigrant, so maybe I heard the 6 digits version from an immigrant (maybe incorrectly) and I picked it up! It happens man, when you live in a city where so many people don't speak perfect English. It's called contagion, ha ha, specially if like me, you're not a native English speaker, it is easy to pick up the wrong stuff. Apologies if that was the case, but I warn you, you're gonna have a lot of work checking my English on every article he he he. I gladly take the feedback though. It was that (blogging in English fully conscious that I make a lot of mistakes) or blog in Spanish,....but if I did the latter I wouldn't have many readers as most Spanish speaking countries are poor and obviously surviving is for them more important than speculating in the American markets.

    I think your positions look pretty good man. Looks like you've been nailing it for the past few months since you stopped trading stocks. Or did you? altogether? Also, how much are you risking per position? Not in terms of dollars, but in terms of % of the overall portfolio? If you don't mind me asking. I'm always interested in how others go about their craft.

    Yeap, 20% would be a decent number this year. We'll see, I think I can do it. Hopefully better than that.
    As usual, thanks for dropping by and leaving your feedback. I'm pretty sure that as of today, many people come to this site not only to read my articles, but also expecting to find your insight at the very end. Which makes the whole site better.

    Cheers,
    LT

    ReplyDelete
  3. Your English is great. I know you are not just catering to American readers like myself as you have visitors from many other countries around the world. I am sure most of your readers will have no problems understanding your blog articles. Besides we are all here to learn how to trade credit spreads so having perfect grammar and writing are less important as long as you can convey your trade ideas and strategies clearly and simply. My grammar is just average as I was not a very good student in school. :)

    "I think your positions look pretty good man."

    My positions look great now but can get in trouble quickly if we have a very significant event or series of events like what happen most recently in 2011. So no positions are truly safe until they are closed and you are back in cash or have some way of hedging your long positions if we have a major correction. I know we are talking about a melt down but it also applies with a melt up like what we seen last year.

    "Looks like you've been nailing it for the past few months since you stopped trading stocks. Or did you?"

    I still sell credit spreads on stocks but much less so than in the past. I am applying similar strategies to what I use with my IWM/SPX trades such as waiting for oversold and overbought conditions. Stocks are definitely more risky to sell spreads since you are betting on one company instead of the S&P 500 or Russell 2000. Stocks can behave much more erratic than stocks. I stick to the big names like GOOG and AAPL since they are so liquid to trade. I have found that if you exercise patience and discipline, you can be successful at it. We know that Nic has been selling spreads on stocks for many years successfully and have a great strategy of managing his risk. I see any profits I make from selling spreads on stocks as a bonus as I still consider my IWM/SPX credit spread trades to be the foundation of my monthly income trading strategy.

    "Also, how much are you risking per position? Not in terms of dollars, but in terms of % of the overall portfolio?"

    Generally, I risk 5% per trade. Sometimes I will go up to 10% for a single trade or to establish a position. For example, on my IWM position for September, I have a 10% position. That 10% position was created by 2 separate trades on 2 different dates. I initially got in for .15 credit than added some more for .20 credit.

    I don't like to have more than 50% of my portfolio in credit spreads. I am beginning to like the idea of owning common shares on stocks or ETFs when we are in an extreme oversold condition.

    "Yeap, 20% would be a decent number this year. We'll see, I think I can do it. Hopefully better than that."

    I think in most years, we can achieve 20% or better if we place and manage our positions properly. As you know, this strategy is not about hitting home runs. It is about making consistent profits over a long time. Karen the Super Trader said she much rather be the tortoise than the hare. I agreed with her.

    "I'm pretty sure that as of today, many people come to this site not only to read my articles, but also expecting to find your insight at the very end. Which makes the whole site better."

    I am very flattered. I hope my comments will inspire other readers to share their thoughts as I have done every week. I would love to see a small community of credit spread traders like us interact and learn from each other on your site. It will make it a more interesting blog as we get opinions from a more diverse group of readers.

    ReplyDelete
    Replies
    1. Some minor corrections:

      1. "Stocks can behave much more erratic than stocks."

      I meant to say that stocks are much more erratic than the S&P 500 index.

      2. The 5% position is just for credit spread trades. For debit spread trades, I risk a much smaller amount like 0.25% of my entire portfolio. My debit spread trades are my 'lotto' trades that I will not get upset if they don't work out. That is why I take a much smaller bet. My credit spread trades are more likely to succeed than my debit spread trades.

      Delete
    2. Hi JT and Jonathan
      I appreciate your support last week. It was a decent week for me as well. I gained nearly 2.5% in my position (nearly all on Friday), so I am now down about 1.5% since my entry four weeks ago. I did make a partial adjustment to the downside earlier this week, according to my plan. Fortunately the SPX took a breather and rebounded. So for now I’m in a good spot, fairly delta neutral. Most of my position expires this Friday, so the gamma’s have been increasing and I don’t have much volatility exposure. I think I will close things out very early this week, as I am not in a very boring or lazy posture, which is my true goal. Expiration week trading is not for me. There is always another month as long as capital is preserved.
      Hope you guys have a good week up coming.
      Dave

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    3. Hi Dave,

      That rally on Friday gave all of us a sigh of relief. I had a decent week too. Let's hope for an uneventful week so that our August spreads can expire worthless this Friday. You should close your positions until you are back to the comfort level. I had a huge position in August IWM credit spread. I need to close half to feel better so I did that on Friday. Nowadays I am more likely to take a quick profit than to let it expire worthless. This bull market is getting a bit long in the tooth.

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    4. This makes perfect sense. The larger the portfolio the more you should diversify risk over different strike prices using smaller positions. Also, the more sense it makes to take profits quicker.

      Delete
  4. First time poster here

    First off, kudos on the gain LT. I've read several posts of yours and I like your rationale behind trading although I prefer to stick to stocks than ETFs and I trade less frequently than you (so, in a way, I'm a Laz-IER trader...har har)

    My strategy is to buy long term options (or stocks) on the company then let it ride short term swings. This way I can focus on other aspects of my life (such as my day job). I usually close the position if I'm approaching closer to the expiry date or if I see some movement that makes me uncomfortable. I would say I'm a 70/30 split between fundamentals/technical trading and I'm still a technical analysis newbie so your site helps a fair bit to understand some of the concepts.

    I'll have lots of questions over time as I get more familiar with the terms. First off - how do you calculate your probabilities of success? Is it something your software tells you?

    PS: I'm also in Toronto, and work downtown.

    ReplyDelete
    Replies
    1. Glad to have a fellow Torontonian as a reader of the site!
      As for your strategy, all I say is, if it works for you, that's what matters. Selling options is definitely NOT the only way to make money when it comes to options trading. Even though advocates of option selling strategies claim that it is impossible to make money in the long term buying them. I don't think so. Maybe more challenging, perhaps, but credit spreads and Iron Condors are not the only way to go. So kudos to you.

      As for the probability of success. I don't calculate anything. It's the software who tells me that. You can download the ThinkOrSwim desktop platform, even if you don't have a account with them. And use it with Paper money indefinitely. I use it for its analysis capabilities. It's just too good.

      Cheers,
      LT

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