Daily Market Newsletter
March 17, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
April Expiration
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Market Commentary
Another profitable month, just taking what the market is giving us. Perhaps I could be more aggressive selling credit spread premium in this market, but the problem that I have is that the realized volatility is still outracing the implied. Perhaps that trend was put on hold this week as the lower boundary of the weekly expected move in the S&P500 actually held up as support. We haven’t seen that since December. In the meantime I’m perfectly content taking what the market is giving me, as most of our bullish call spreads have been working well lately, as have our short equity puts when we’re seeing enough of a pullback to make selling them worth it.
The political risk appears to be massive these days; just like in 2017, the pot is bubbling just below the surface, and you just keep wondering when the lid will blow off.That sort of skepticism kept stocks on the run from covering shorts throughout 2017….will it happen again in 2018 once this consolidation is over?
The scan for the “Cheap Stocks with Weeklys” is available here.
The RSI(2) FE scan is available here.
The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.
The latest crypto video (What the FUD?) is available here
Please sign up for our free daily crypto report here.
If you cannot view today’s video, please click here to view an embedded flash video.
Offensive Actions
Offensive Actions for the next trading day:
- SPY Expected Move levels have been derived but I’m not interested in fading them just yet.
- I want to use any bounce in NUGT to sell anything that I can at the $31.5 strike price; see “stocks” below.
- I would like to enter a debit call spread on Visa, see “whale” setup below.
Defensive Actions
Defensive actions for the next trading day:
- Any vertical, butterfly, or diagonal 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
Market Internals: Volume was average Friday and breadth ended the day modestly positive with +209 advancers minus decliners
SPX Market Timer : The Intermediate line rose above the Lower Reversal Zone, still showing a bullish bias. Friday’s price action produced a weak bullish cluster in the lower reversal zone for the third day in a row, normally a reliable bounce signal.
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX fell to 15.80 after peaking at 50.3 five weeks ago, back inside the bollinger bands. The RVX fell to 16.49 and is back inside the bollinger bands.
Fibonacci Retracements: The price has retraced 38.2% of the election rally; so far this has been a garden-variety correction.
Support/Resistance: For the SPX, support is at 2650 … with overhead resistance at 2878. The RUT has support at RUT 1436 with overhead resistance at 1619. All three major index charts that we follow are now showing a Golden Cross with the 50 day moving average crossing above the 200 day average.
Fractal Energies: The major timeframe (Monthly) is now down into exhaustion again with a reading of 35 and charging quickly. The Weekly chart is now well above exhaustion (for the first time in months) with an energy reading of 46, and is recharging rapidly. The Daily chart is showing a level of 45 which is near fully charged and ready to trend again. Markets are doing PRECISELY what they must in order to restore energy that has been incredibly depleted. Extreme Range Expansion leads to extreme range contraction (big swings).
Other Technicals: The SPX Stochastics indicator rose to 65, mid-scale. The RUT Stochastics indicator rose to 83, overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2677 and resistance at the upper band at 2794 and price is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1501 to 1611 and price is below the upper band. The bands were starting to squeeze again and have released.
We recently saw the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move, and the price action over the last week looks to have signaled the end of that move. We should be in sideways/volatile behavior for months.
I had the following results for the 16MAR 2018 Options Cycle:
High Probability Iron Condors
No trades this cycle.
Low Probability Iron Condors
No trades this cycle.
Time Spreads
No trades this period.
Cash-Secured Puts/Covered Calls
- BAC 16MAR $28 puts were closed for a $210 profit on five contracts after commissions.
- NUGT 23FEB $32 calls expired OTM; this provided a $220 profit on five contracts.
- HFE 16MAR $14 puts expired OTM for a $220 profit on ten contracts. .
“Whale” Trades
- BIDU 23FEB 255/257.5 Debit Call Spread expired for a $254 loss on two contracts.
- MU 16MAR 45/46 Debit Call Spread was closed for a $125 profit on five contracts.
- PYPL 29MAR 79.5/80.5 Debit Call Spread was closed for a $135 profit on five contracts.
- KEY 23MAR 21/22 Debit Call Spread was closed for a $120 profit on five contracts.
- KRE 29MAR 62/63 Debit Call Spread was closed for a $125 profit on five contracts.
- TWTR 29MAR 33/34 Debit Call Spread was closed for $135 profit on five contracts.
Swing Trades
- HAL 23FEB 47.5/48.5 call debit spreads was closed for a $180 profit on five contracts.
- SPY 16MAR 285/286 debit call spread expired for a $150 loss on ten contracts.
Hindenburg Positions
No trades this period.
SPY EM Fade/Target
No trades this period.
Lessons Learned from this cycle:
I had written last month in this report: “I believe that the probabilities favor more of a large sideways range into the spring of 2019, and not necessarily a V-bottom.” This is almost precisely what we’re seeing…and probably will continue to see in the upcoming months. Yes, I’m still a little reticent about selling premium outside of the range, but I’m still waiting on the bottom re-test.
In the meantime I will continue playing these swings up and down…I think we might have one more big swing to the downside in the works, which would be nice…but ultimately it looks like it is the Bulls’ to lose.
Position Management – NonDirectional Trades
I have no positions in play.
I was not able to sell additional put spreads on the re-test of the lows and do not believe in “chasing” price higher.
If this price ends up dropping near the February lows, we’ll get another shot to sell premium with put spreads; I am still not very eager to sell call spreads in this market. The longer-timeframe trend is not only “up,” but it’s one of the strongest trends that has ever been seen. I would prefer that we wait to confirm the “sideways and volatile” character before I sell call spreads again.
Call spreads have been a very dangerous trade since 2013, as are HP put spreads sold into very low IV. Let’s be careful before we just layer in more spreads.
I have no positions at this time. Not the right type of market for these trades. As we can see by the price blowing through the EM on a weekly basis, IV < HV these days.
I have no remaining positions. Calendar spreads are good for markets with some volatility but they are long vega so we can’t enter them during IV spikes or periods of elevated volatility.
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 personally believe that while markets are in “runaway” mode, easy gains may be had however there is always a huge amount of risk to “buying at the top” as we saw at the end of last week. We’ll look to go shopping soon.
To combat this risk, I am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of 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:
- 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. I sold 20APR $16.5 calls (2/26) for $.17.
- NUGT stock – I was assigned on NUGT at the $31.5 price level. I want to sell 29MAR $31.5 calls for at least $.30 if the price rises far enough.
- DUST – We are out of DUST for the time being.
- GLW – I sold the 20APR $25 puts (2/12) for a $.25 credit
- HPE – I sold the 16MAR $14 puts (2/12) for a $.23 credit. These puts expired for full profit.
- XLF – I sold the 20APR XLF $27 puts for $.41. I will look to close these for $.05
No trades at present, other than continuing to look for $31.5 calls to sell for at least $.30 in the 29MAR series. If I don’t see a quick bounce early this week, I’ll move out to the 6APR series.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – I added an additional setup (3/12) by using the 6APR 285/286 call spread, bought for $.21 debit.Looking for a re-test of the highs.
- RSI(2) CounterTrend – Looking for the next setup. None showing right now.
- Daily S&P Advancers – if I see the number of daily S&P500 advancers drop into single digits near the close of any trading day, I will go long shares of the SSO. I want to be looking for this signal every day from this point forward, because a wash-out low will show this signal.
The crypto market is still wringing out the excess of late 2017. A ‘lower high’ was printed on BTC and this might be the beginning of a quick death-spiral to knock out the rest of the weak hands. The next rally will have zero participants, as it should be on any good rally moving into “disbelief” phase.
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 current Friday closing price at 274.20, there is a +/- 4.566 EM into this coming Friday. This is about the same as last week’s EM.
The EM targets for this Friday’s close is 278.77 to the upside, and 269.63 to the downside.
I don’t really have any interest in fading the EM this week, because the market is in transition, and we are more likely to see expanded range movements during this type of character. Last week’s EM of +/- 4.353 was tested to the downside.
I have no current positions. I will consider setting up another ratio fly as price approaches resistance:
Entry criteria are:
- Using calls
- 17 to 50 calendar days
- center strike .25 to .40 delta
- ratio is 1/3/2 quantity, from the bottom, calls are long/short/long
We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods. I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation. TOS scan code: http://tos.mx/hvWmMl
I have the following positions:
- SPY 20APR 260/259 Debit Put Spread (2/26) entered for $.11 debit. We’ll hold for deeper moves.
- LUV 6APR 59.5/60.5 debit call spread (3/12) entered for $.50 debit.
- MSFT 6APR 96.5/97.5 debit call spread (3/12) entered for $.51 debit.
The charts that I like this week are APC, EA, and V.
I will look to take a 20APR 124/125 debit call spreads on V this Monday; assuming no big opening gap up or down, I would seek to enter this strike pair for about a $.50 debit.
I’ll attempt to secure a 50% return on all of the call spreads.
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
I have no positions at this time and need to see the price rally to recent highs again to reload. It’s not just the price, it’s also the implied vol which needs to drop.