
Daily Market Newsletter
October 22, 2016Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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Market Commentary
Back in the profitability column for this cycle but nothing to brag about. Earlier in my career I was more of a one-trick pony with options selling, because the market fit that character. I would have one great month after another, and the confidence was there. And then the market changed character, and I was not ready. Coincidentally, it was right when I had “upped” my position size as I felt that I should be more aggressive. The market always knows when you do something foolish like that and it was to be one of the larger lessons for me.
One can go through an entire career working at a job, and once a certainly level of competency is reached, stop learning lessons. Not so with Markets….you must accept the fact that you will continually be humbled at the feet of the Market. And there is no room for complacency; someone else will be there to take your place in an instant.
Something’s gotta give, and it’s going to “give” really soon. Yellen has floated the trial balloon out there about running a “high pressure” economy to stimulate inflation and lower unemployment. This is another way of saying “keep rates low for longer.” I don’t know, has that actually led to inflation in the way that they are measuring? All I know is that they measure no “inflation” however just about everything that I purchase these days (minus gasoline and flat panel TVs) is a lot more expensive….not to mention the ridiculous asset prices of stocks, which were the primary beneficiary of previous QE rounds. We appear to be in another round of less-than-great earnings. The market has been propped up for years on fiat currency and a false narrative…something’s gotta give, and it might happen with the next unexpected risk to hit this country.
And Friday’s internet outage showed how easy that might be….
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Offensive Actions
Offensive Actions for the next trading day:
- I’m going to enter a couple of speculative earnings trades on BA Monday morning; see Whale section below.
- I’ll add my next Hindenburg long puts on Monday.
Defensive Actions
Defensive actions for the next trading day:
- Any vertical debit spreads that we set up are risk-managed from day one, and no defense is really required.
Strategy Summary Graphs
Each graph below represents a summary of the current performance of a strategy category. For an explanation of what the graphs mean, watch this video.
Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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Technical Analysis Section
I had the following trades in place for the 21OCT 2016 Options cycle:
Position Management – NonDirectional Trades
I have the following position:
- SPX 11NOV 2080/2085*2185/2190 LP Iron Condor (10/17)- I entered this position for a $2.50 credit, and per my recent advisory I closed this position with limit order for $2.00 debit GTC (10/21). This created a 16.8% return in the space of 5 days.
I don’t want to go back to the well with another position until “the move” shows up, whenever that is.
I have no time spreads at the current time. My preference is to take these on DAILY exhaustion and not WEEKLY exhaustion signals, since the weekly exhaustion creates unwanted price volatility. Similar to the LP Condors above, I will likely have to expand my view to include equity candidates that are showing a likely short-term consolidation. This is never my first choice due to the additional variables that we encounter.
I have the following positions in play:
- SDS Stock – I still own 100 shares of this stock from 2011 and will continue to write calls against this position with every correction/pullback.
- VXX Stock – I own 12 shares of this stock and will hold until Armageddon occurs.
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level, and will continue to write time against these shares on every rally. I wrote 21OCT 20.5 calls (9/7) against half of my position for a $.21 credit, which expired on Friday. I will look to sell more calls in the next bounce higher in SLV.
- SSO – Waiting for the next pullback to sell puts against the SSO, preferably at the 50 level or lower. .
Nothing to do at this time with current positions.
Position Management – Directional Trades
Looking for the next edge. Price has been so choppy that it’s been difficult to identify the next edge.
I have the following positions in play:
- QQQ 11NOV 116/118 debit put spread (10/17) – I entered this trade by buying the 118 put and simultaneously selling the 116 put, for an .84 debit, and I will look for about a 50% return from this trade.
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I like how BA is set up, however there are earnings on the horizon. We could play this a couple of ways. If we think that there might be an upside “pop” on their release on the 26th, we can either play ITM or ATM. The EM to this Friday is about 4.9 points, or a target of just over $140/share. I could buy the BA 28OCT 140/141 for about $.20 a contract, which might produce more than a 100% return should the price pop higher, or we could do the ATM BA 28OCT135/136 for a lower expected return yet easier management should we not get a big pop. I think I will play both of these on Monday morning in lieu of the boredom from this market.
I will adjust strikes if there is a gap on Monday.
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.
To remove the current series of puts, I will look for a move down to and below the SPX 2100 level.
I never got the upside “burst” to allow me to sell call spreads above SPY 230 that I wanted; now I can concentrate on selling put spreads at some level below SPY 200.
I will add the next series of Puts on Monday morning; I will target the 20JAN17 SPY 193 puts, which are currently going for about $1.54
We currently have the following positions in play with this strategy:
- SPY NOV 197 Long Puts – I entered this position (8/22) for a $1.56 debit.