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Saturday, January 28, 2017

Weekend Portfolio Analysis (January 28, 2017)

This week's analysis has been published at

Download Weekend Portfolio Analysis (2017-01-28).pdf

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The Weekend Portfolio Analysis will be available on this site next week for historical reference.

All currently open positions can be seen on the Track Record page

Related Article: Weekend Portfolio Analysis (January 21, 2017) 
Last week I talked about the idea that some sort of break out, or sell-off should be approaching and we kind of had that: new all-time highs. Now the situation is a little stretched and different: we're close to the upper end of the channel and I think upside is a bit more limited now.

Recent Trading Activity

- Closed FEB IWM 126 Puts for a $172 loss on Monday.

Market Conditions 
(Click on image to enlarge)
Stochastics: 91 (overbought)
McClellan: +6 (neutral)
Stocks above their 20 DMA: 56% (neutral)

No man's land.

Unfortunately for options sellers, the VIX is ridiculously low. Now below 11, making the business less attractive. At the same time, for pure long term investors, it is challenging to find companies attractively valued these days. It is time to be more quiet than active in my opinion. Of course, the market will still be the market and do what everyone is least expecting the. But, we need to operate under some basic thesis at least. From a pure technical perspective, price is close to the upper end of the long-term uptrend channel, which points to a 2,313 close by Friday the 3rd. So, I am going to operate under the assumption that it will be challenging for price to close higher than that this upcoming week. SPX 2,313 is my ceiling, we'll see. And the VIX, lest we forget, is extremely low at 10.58. That number will move up, eventually. In the meantime, one must just be careful fighting low volatility rallies and simply avoiding major harm to the account until the good times come.

(Click on image to enlarge)
No position in Russell at the moment.

Current Portfolio

FEB SPX/SPY 2115/2125/2350/2360/216/236 Unbalanced Elephant
$1,294 net credit. 3 weeks to expiration

In spite of the new all-time highs reached by SPX this week, this Elephant is not looking bad at all. In fact, the 2,350 short Call is only at the 9-delta mark. Not bad despite the adverse market move. I've argued that a rally would not bother me too much simply because this Unbalanced Elephant will make money overall even if the Call side is a loser.

(Click on image to enlarge)

Put adjustment at 2,175 this week.

On the way up 2,330 is roughly the point to take small loss on Call side and forget about it, leaving the Put side open in that case to absorb the loss and bring additional gains.

The position is showing roughly $1,000 in open profits. More than 75% of max gain which has been achieved in half the original time to expiration of 6 weeks.

MAR SPX 2090/2100/2360/2370 Unbalanced Iron Condor hedged with SPY 214 Put
$1,974 net credit (when subtracting the debit invested in the SPY Put). 7 weeks to expiration. 7 deltas on the Put side and 17 deltas on the Call side which is demanding some attention:

(Click on image to enlarge)
Adjustment point on the way up sits at 2,325. That number is still uncomfortably close to the 2,330 take-loss-and-move-on point of the February Elephant. Even though in my view, SPX 2,313 this week is a high ceiling, the truth is that there is some risk concentration here in similar spots.

On the way down the adjustment point lies at SPX 2,170, also similar to the 2,175 adjustment point of the February Elephant, which is not precisely desirable.

Because of this concentration of risk in similar spots I will be taking the February Elephant off the table if I can do so for $1,000 gain or so. In the previous weekend analysis I was willing to ride both positions for one week and then re-asses given how safe they were both looking. The picture has changed a bit and SPX 2,325 - 2,330 is within striking distance (just about 1% higher), so I'm a proponent of taking the Feb Elephant off the table.

Action Plan for the Week

- I'll take the February SPX Unbalanced Elephant off the table if I can do so for a $1,000 gain or better.

- If I'm unable to take the Elephant off the table for the gains I expect, then defend the position in case the index reaches 2,175 (Put side adjustment. This is a 6% market fall in a week. Unlikely) or 2,330 (just close Call side for a small loss and ride the Put side).

- Defend the March SPX Unbalanced Iron Condor if the index reaches 2,170 (Put side adjustment. Unlikely) or 2,325 (Call side adjustment to around SPX 2,400 where it should be safe without hassle).

- Finally, I'll try to initiate an Unbalanced Elephant position by Thursday/Friday following the guidelines discussed in the Unbalanced Elephant guide.

I honestly haven't decided between SPX and RUT yet but I'm more inclined towards SPX.
Even though the numbers will change, these are roughly my candidates now:

March SPX/SPY 2135/2145/2380/2390/217/239. Number of contracts 20/20/8/8/2/12

March 1235/1245/1450/1460/127/146. Number of contracts 20/20/6/6/2/12

Economic Calendar

First week of the month, always interesting given the importance of the data that is reported:

Monday: US Pending Home Sales
Tuesday: Europe CPI, GDP and Unemployment. US Consumer Confidence. China's Manufacturing PMI
Wednesday: US ADP Non-Farm Employment Change, Crude Oil Inventories, FOMC Statement
US Non-Farm Payrolls, Unemployment Rate. ISM Non-Manufacturing PMI

Good luck this week my friends,

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Check out 2017 Track Record

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