Daily Market Newsletter

I had the following results for the 19OCT 2018 Options Cycle:

High Probability Iron Condors

• SPY 19OCT 282/283*295/296 Long Iron Condor opened for total debit of $.34. The Put Spreads were closed for $.51 credit and the call spreads expired OTM. This gave us a net profit of $13/contract or a 38% return on capital. With ten contracts this gave me a net $130 profit.

Low Probability Iron Condors

No trades this period.

Time Spreads

No trades this period.

Cash-Secured Puts/Covered Calls

No trades this period.

“Whale” Trades

• IWM 19OCT 170/172 debit call vertical entered for $1.03 debit expired worthless, for net $210 loss on two contracts.
• MCD 26OCT 162.5/165 debit call vertical entered for $1.25 debit and closed 9/28 for $1.71 credit.
  This gave us a net $42/contract profit after commissions, or a 33.6% return on capital. With two contracts this gave us an $84 profit.
• QQQ 26OCT 190.5/191.5 debit call vertical entered for $.18.and sold off for a $.36 credit. This gave us a net $14/contract profit after commissions, or a 78% return on capital. With ten contracts invested, this gave us a net profit of $140.

Swing Trades

• AAPL 26OCT 220/222.5 debit put spread entered for $1.23 debit and closed for $1.52 credit.This gave me a net $25/contract profit after commissions, or about a 20% return on capital. Trading two contracts, this gave us a $50 net profit.
• SPY 19OCT 275/276 bull put spreads created for a $.45 credit, and closed the next day for a $.12 debit. This gave me a net profit of $29/contract or a 52.7% return on risk. With a ten contract position this gave us a $290 profit.

Hindenburg Positions

• SPY 16NOV 257 Puts for $1.50 debit and closed for $2.15 credit. This gave me a $126 profit on two contracts.
• SPY DEC 262 Puts entered for $1.72 debit and closed for $4.20 credit. This gave me a $492 profit on two contracts.

SPY EM Fade/Target

No trades this period.

Lessons Learned from this cycle:

Market transitions are always difficult unless you anticipate them and take steps to manage risk ahead of time. This means not overly leveraging up with short options when conditions are quiet, because “contraction” leads to “expansion.” It also forces you to take steps that don’t feel good at the time, such as taking entries on contrarian trades. Let’s list a few of these steps that we’ve taken lately:

• Long vs. Short Condors: We’ve been playing Long Condors lately when conditions showed likely to “move,” whichever way that was. We’ve only been playing short condors when conditions are perfect for a short consolidation. While we’re not placing trades every single cycle, our overall results have been good.
• Hindenburg Puts – In the event of a big drop, nothing works better than a long OTM put option bought when conditions are cheap. We correctly doubled up on our long puts with the idea that “something” will happen in the near future, especially with the amount of overall bullishness that we were seeing.

OK, now that price has gone into “corrective” what is our approach?

With the increased volatility we can still play the long/short condor strategies, we just have to be a little more cautious and use the movement to help propel trade entries further out. We can also play swings within the expanded range of price action, however we need to be good at taking profits early, because few swings will “release” until the final one. It’s like a dog whipping a toy back and forth in its mouth, both sides of the ledger get mauled until the price releases.

I have no positions at this time.

We’ll park this strategy until the next high-probability condition shows. We’ll want to see daily exhaustion on the SPX or RUT after a strong move, at the very least. This strategy works best with a quiet/trending market.

I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so there is a good shot that we can start to play these again.

The calendar spread tracking sheet is available for your download here. Yes, if you follow the math in the sheet, all of the numbers account for commissions in and out of the trade. Please note: If you trade these positions please keep the size small, to the point where you “do not care” about the success or failure of this position.

I am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of a crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic. I have the following positions in play:

• SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I sold the 31DEC $15 SLV calls (10/3) for $.16.
• SSO – I sold SSO 16NOV $109 puts (10/8) for $1.20 credit. I’m still fine with this position and will accept assignment should the price drop from these levels.

I am going to add small short put positions on the following stocks on Monday:

• GLW – Not currently listing the DEC monthlies, should be printed Monday AM and would like to secure $25/$26 range
• CSCO – looking to enter DEC $40 strike
• INTC – looking to enter the DEC $37 strike

The crypto market is holding tough while equities get slammed. So far I am not seeing a lot of correlation between these markets.

Investors should currently be looking to find technical entries to warehouse BTC/ETH/LTC assets for eventual trades on Alt-coins. You should also be looking to devices like “trezor” or other cold-storage devices to keep your assets off of the network, or other secure wallet such as Navcoin. Relying on the security of your broker is no longer good enough; no one can log into your ETrade account and “steal” your stock assets, but the whole nature of Cryptocurrencies and their portability means that someone can grab your assets and transfer them elsewhere. I will continue to discuss the tradingview platform in daily videos as I think that it is currently the best way to chart the “big three.”

Viewing the SPY from the Friday closing price at 276.25, there is a +/-6.589 EM into this coming Friday.  This is about the same magnitude as last week’s 7.161 EM and reflects the fear/indecision in the markets that is not going away.

The EM targets for this Friday’s close are 282.84 to the upside, and 269.66 to the downside.

It’s going to be difficult for the price to make it to one of these EM markers this week so they might be a good fade level. Remember, we want to let the level prove it to us that it will reject before we take the fade position.

This is a new section for this newsletter; I would like to start to carefully build some bearish positions that would be the virtual opposite of a covered call, yet I will use deep ITM long puts as the short stock substitute, and write short covered puts against those long puts.

I would like to add one additional consideration to the criteria, in that I’d like to see the price print a “lower high” first on the daily chart. Otherwise what is “high” can go “higher” as we’ve seen repeatedly over the years.

I will also publish the criteria for managing the short and long positions with this strategy. This is definitely counter-trend for now but might prove to be valuable down the road.

We previously were seeing LOW and UNP show up on this scan, and both would be winners now. . Quite honestly nothing has really faded after showing on this scan. We might need to wait for larger timeframes to exhaust themselves as it appears like 2017 is repeating again.

Previously I was seeing MRK, PFE, and LLY show up on this scan; I added the MRK 16NOV $75 puts for about $7.00/contract as a paper trade. I’ll just track this one on paper for now while we develop management rules. If the price drops I will sell short-term puts against it (on paper). Even these NOV puts are still underwater after recent distribution.

The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz

I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL

I have the following positions at this time:

• NVDA 02NOV 285/287.5 debit call spread (10/1) entered for $1.22 debit, looking for 50% return on this trade. I might have missed my opportunity to make a quick 30% and get out.

No other entries at this point. I would prefer to see the market stabilize first before looking long again.

The “Hindenburg Strategy” is meant to capture “value” from successive corrections that lead up to the final “death spiral” with a Bear Market. The basic principle is to buy 3-month out long puts on the SPY, and to finance those puts by the sale of credit spreads. Frankly, selling the “financing” trades has been a huge challenge in this low-vol environment. I will only sell put spreads on decent pullbacks that allow me to secure put spreads 10% OTM. We have no positions at the current time.

I have no positions at this time. I cleared out the current puts on the drop to the 200ma. I will “reload” again on the next bounce up.