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Sunday, November 13, 2016

Weekend Portfolio Analysis (November 13, 2016)

I see so much symbolism in the act of burning up a flag. Maybe it's just me and it is no big deal to others. But especially a flag that has given you the freedom to burn it up without suffering any consequences. Had I ever burned a Cuban flag publicly in the streets of Havana, I can guarantee you I would have been 'castrated' the next day by the government secret police.

But what the hell is this? This is not LT's "Societal studies"? And besides, enough with politics. We've all been exposed to unhealthy high doses of it this year and need to start cleansing ourselves badly. Let's get the ramble over with, shall we?

Market Conditions 
(Click on image to enlarge)
Stochastics: 86 (overbought)
McClellan: +13 (neutral)
Stocks above their 20 DMA: 65% (neutral)

No man's land. Good for Iron Condors. Risky for individual Credit spreads to one side of the price spectrum, as this thing can move violently either way per my sacred rules, extracted from the Old Testament.

For the 238,203,897th time in history, we rebound violently from overly pessimistic price extremes. Even more noticeable in the Russell index. RUT has been the one castrating overly pessimistic traders without need to see them burning up national flags:

(Click on image to enlarge)
A truly remarkable 11% rally from the lows of the week. A really dangerous vertical move. I mean, I just look at it and can't help the sensation of wetness in my arrière.

This is why you need to go against dogma: "Oh, you initiate positions when volatility is high". Really? When volatility is very high it usually means the market has gone down considerably, and, more often than not it is bound to reverse violently at some point. That's why, I can say with a straight face that I prefer to initiate an Iron Condor position when the market is in no extreme mood mode (No man's land) even if volatility is not at its highest, because the alternative would make you money once volatility contracts, but very frequently those gains are decimated by the effects of Delta and Gamma brought by the force of the next move.

Current Portfolio

DEC SPX 1860/1870 Credit Put spread
$1,300 credit. 5 weeks to expiration. Just 3 deltas. No real concern. I'd like to close it before expiration for at least +$1,000.

NOV RUT 1080/1070 Credit Put spread
$650 credit. It will expire for max profit this Friday.

DEC30 SPX 1990/2000/2270/2280 Unbalanced Iron Condor
$2,360 credit. Initiated just 72 hours ago. 7 weeks to expiration and lots of baby-sitting ahead. No threats for now.

Action Plan for the Week

- Let the NOV RUT 1080/1070 Credit Put spread expire for max profit on Friday.

- Close the DEC SPX 1860/1870 Credit Put spread for $1,000 gain if possible. This is unlikely to happen this week.

- Consider a new RUT Lazy Elephant position by Friday, once the RUT Credit Put spread expires.
A RUT 1140/1150/1370/1380 Elephant, using DEC30 Options and 10/10/10/12 contracts per leg looks interesting:

I would play this one hedged. With the December Fed Meeting and all the uncertainty that there will be around the potential Interest Rate hike, plus the recent violent up moves, I'd rather be safe than sorry. So, the addition of a long IWM 118 Put would be in play. We still have one month until that Fed meeting, arguably the most important of the year. That should be enough to make some money on this Elephant and get out early. Strike prices may change from here to the time I initiate this position, but this is the general idea.

- Final component of this week's action plan: Defend the DEC30 SPX 1990/2000/2270/2280 Unbalanced Iron Condor. Adjust the Put side if SPX falls near 2,080. Use DEC30 options in the mid 1,800's. Adjust Call side if SPX reaches 2225 this week. Use DEC30 options above SPX 2,310. Both scenarios unlikely in my view.

The LT Trend Sniper system will go short spot Gold tonight (via symbol XAUUSD) and the Euro (via EURUSD). I know the last few trades have not been great, and I have a sour taste in my mouth too, but a mechanical system is a mechanical system. Short spot Gold and Euro tonight.

Economic Calendar

Sunday: China's Industrial Production
Monday: Europe's Industrial Production. Three Fed members speak
Tuesday: German GDP and Economic Sentiment. US Retail Sales
Wednesday: US PPI, Crude Oil Inventories
Thursday: Europe CPI, US Building Permits, Core CPI, Housing Starts, Philly Fed Index, Fed Chair Yellen testifies.
Friday: ECB President Draghi speaks. Three more Fed members speak.

Options Trading results: +7.38% for the year (S&P benchmark: +5.90%)
                                         Portfolio 43% invested, 57% cash.

Take it easy, but take it anyways.

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