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BookingAlpha Option Trading Advisory

Sunday, November 20, 2016

Weekend Portfolio Analysis (November 20, 2016)

Mejor tarde que nunca!
You're pal LT has been caught in the manly and greasy world of car fixing over the weekend. My uncle has been a mechanic all his life, and while it is true that I could leave him alone and let him do his thing, at the same time the masculine thing to do is to just be around, seeing him work and inquiring about things. That's just how we men roll. These last few days reminded me of the simplicity of my life in Toronto: way fewer bills, no car related drama, etc. For some reason I easily spend more money in Miami than what I used to spend in the indisputably way more expensive Toronto, even though food, water and electricity are all cheaper here, gas too, by far, and taxes are lower. Friends, that's all neutralized by car expenses, health insurance, and all sorts of other required insurances. Welcome to the land of insurances. I never had to pay a monthly insurance for the apartments I rented in Toronto. Never. Apparently it is the law here. Everyone's covering their respective asses from every possible angle. Curious note: my rent contract documents in Toronto never took more than 3 pages. The rent contract for my current apartment in North Miami Beach: 49 pages.

But what the hell is all this numbo-jumbo!?? This is not "Anthony Bourdain's Parts Unknown"!? The hell is this?! Let's get down to it shall we?

Recent Trading Activity

- Closed SPX December 1870/1860 Credit Put spread on Tuesday for a $1,100 gain

- November RUT 1080/1070 Credit Put spread expired on Friday. A $650 gain.

- Initiated a DEC30 RUT Lazy Elephant on Friday.

Market Conditions 
(Click on image to enlarge)
Stochastics: 93 (overbought)
McClellan: +72 (neutral)
Stocks above their 20 DMA: 74% (overbought)

No man's land. Obviously close to an overly optimistic extreme, which is even more obvious on the Russell:

(Click on image to enlarge)
Up 14% in two weeks is just too much by historical norms. The index is also 6.9% above its own 50 day average. That's just too much. RUT certainly tends to overshoot, more than the SPX. The SPX index rarely moves 4% above its 50 day average. RUT does it more often, but 6.9% is just a bit too much. The move must be digested either via time (sideways action) or a price retracement. But according to my rules, it is just not the time to sell a Credit Call spread yet. Close, but not quite there.

Current Portfolio

DEC30 SPX 1990/2000/2270/2280 Unbalanced Iron Condor
$2,360 credit. 6 weeks to expiration. No threats for now.

DEC30 RUT 1180/1190/121/1390/1400 Lazy Elephant
$1,070 credit. Initiated just 48 hours ago. Also 6 weeks to expiration. Lots of baby-sitting ahead.

Action Plan for the Week

- If we reach an overbought extreme, I will add a Credit Call spread position. If I play it via the SPX index, it won't consume extra margin in the portfolio as the Iron Condor that already exists is unbalanced, with fewer Call contracts. However, I will be way more tempted to sell it on the Russell given how over extended it looks already. DEC30 RUT 1410/1420 for 1.00 credit would be an ideal candidate.

- No threats on the horizon for the existing positions. I don't think adjustments will be necessary this week.

- Close the Call side of the RUT Lazy Elephant is a retracement that allows me to book a $400 gain takes place. This would be a significant decline to about 1260, or more than 4% in a week, so I think this scenario is a bit unlikely.

- Finally, this Friday will put us 8 weeks away from January expiration. It would be my time to kick off options trading for the year 2017. However, given the recent presidential election, which led me to trade December options two weeks later than usual, and select DEC30 instead of regular expiration date, If I enter a January trade now, I would have three positions on, two of which still have a lot of time left to expiration. In other words, the capital exposure in the portfolio would take a long time to be relieved as December options that should be 4 weeks away from expiration are 6 weeks away from expiration instead. I think I will postpone the first January 2017 trade until next week, for a little more time diversification.

The LT Trend Sniper system went short the Euro and Gold last Sunday.
Both positions are looking good.

The red line is the entry price level, and at this moment also the Stop Loss, which the Sniper has moved to break-even. In other words, the Sniper will not lose money in this position and it is now a matter of letting it truly run. We'll see if we finally hit a homerun here. There is about a 3% portfolio gain form this trade as we speak.


The green line represents the short entry price level, and the red one is the Stop Loss level at the moment. There is a roughly 1.3% portfolio gain for now, although this position is not out of the woods yet and money can still be lost. Gold has to make a lower closing low this week than the close made on Thursday's bar, otherwise the position will be closed at the open next Sunday (7 days from today).

Economic Calendar

Monday: ECB President Mario Draghi speaks
Tuesday: US Existing Home Sales
Wednesday: US New Home Sales, Crude Oil Inventories, FOMC Meeting Minutes

Options Trading results: +9.03% for the year (S&P benchmark: +6.75%)
                                         Portfolio 25% invested, 75% cash.

Good luck this week folks!

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