Daily Market Newsletter

I had the following results for the 16FEB 2018 Options Cycle:

High Probability Iron Condors

• SPY 16MAR 218/220 put credit spread was entered for $.19 credit.and was closed for a $.03 debit. This gave me a $12/contract net profit after commissions, or a 6.6% return on risk. With 20 contracts this position netted $240.

Low Probability Iron Condors

No trades this cycle.

Time Spreads

No trades this period.

Cash-Secured Puts/Covered Calls

• SLV 16FEB $17 short calls expired for a $160 profit on ten contracts after commissions.
• NUGT 26JAN $30.5 puts were closed for a net $.26 credit, or a $25/contract profit after commissions. With five contracts, this provided a net $125 profit.
• NUGT 2FEB $31.5 puts were sold for $.31 and were assigned; this gave me a net credit of $30/contract after commissions, or a net $150 profit.
• NUGT 09FEB $31.5 calls were sold for $.28 and expired OTM for a net $135 profit.

“Whale” Trades

• MCD 9FEB 175/177.5 Debit Call Spread was closed for break-even.

Swing Trades

• SPY 31JAN 261/262 Debit Put Spread entered for a $.12 debit; this trade expired OTM for a net $140 loss after commissions on ten contracts.
• SPY 9FEB 271/272 Debit Put Spread entered for a $.10 debit.and closed for a $.43 credit. That produced a net profit after commissions of $29/contract or a 290% return on risk, or net $290 on ten contracts.
• USB 16FEB 54.5/55.5 call spreads (RSI2) closed for a net $17 profit/contract after commissions, for a net $170 profit on ten contracts, or 34% return on capital.
• SSO long (advancers/decliners entry) at $107.32 cost basis and sold this position for a price of $111.29. This gave me a net profit of $392 after commissions, or 3.65% return on capital.
• SPY 31JAN 274/276/278 Ratio Butterfly was closed for a net $166 loss after commissions on one contract.

Hindenburg Positions

• SPY MAR18 240 long puts entered for a $.94 debit and closed it for a $3.75 credit. This produced a profit of $279/contract or a 297% return on capital..

SPY EM Fade/Target

• SPY 26JAN 283/284 put spreads were traded intraday as an EM fade, producing a net $22 profit per contract, or a 56% return on capital after commissions. With five contracts, this was a $110 net profit.

Lessons Learned from this cycle:

I had written in this space for last month’s review, “I still think that the best way to handle this environment is to remain long, don’t assume anything about what the price is capable of doing at the current time, and remain in limited-risk “long” mode until the market says differently. Price can end up going much further than anyone expects and we’re still in a low-interest environment……..Yes some day this will end poorly and will cause titanic volatility as everyone rushes for the exits at once. But we’ll stay in a position where we won’t care about that move, and in fact we’ll allow the increased vol to allow us to shift in different directions. I’ve never slept better than in this market because I’m not trying to fight it, unlike 2013.”

If I look at my career along the past 15 years, the early February sell-off would have nailed me squarely in the jaw every single time for about the first ten years. It took that long for me to understand on a more innate level how markets move, and to understand how to fight my own feelings to seek “certainty.” I’ve seen it so many times now, the final parabolic move where you get so disgusted with the market (usually for not being long enough) that you finally just say “the hell with it” and enter long. That’s usually the exact top, where sideline bulls can’t take it any longer and the bears give up.

I believe that the probabilities favor more of a large sideways range into the spring of 2019, and not necessarily a V-bottom. But we want to look for opportunities to sell outside of the current range of prices. Even if this current market transitions into a full Bear, it will do so in a torturous, slow manner.

I have no positions at this time. Not the right type of market for these trades. If/when the price rallies higher to resistance, that might be an excellent time to place a LP Iron Condor.

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.

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 FEB18 $17 calls (1/2) against my stock position for $.17 credit and these expired on Friday. I will sell APR calls, see below.
• NUGT stock – I was assigned on NUGT at the $31.5 price level. I sold the 16FEB $28 calls for $.30 (2/12) and per Tuesday’s advisory I closed these for $.84 (2/14) as the price hit the $28 level, and rolled these out to the NUGT 23FEB $32 calls for a $.45 credit.
• DUST – We are out of DUST for the time being.
• BAC – I sold BAC 16MAR $28 puts (2/6) for a $.48 credit. I will look to close these down for $.05
• 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.

We used the recent dip to sell against uptrending assets.

I want to sell the 20APR SLV $17 calls for at least $.17 credit on Tuesday when markets re-open.

We might be seeing a small bounce but it’s not what I would want to see to signal the end of this Bear. We still need to see the final, eventual capitulation that is so necessary after December’s blow-off. One piece of bad news after another is a recipe for a wash-out that is overdue.Even great coins are being destroyed right now; this is like how a forest fire renews an area for new growth. Because there are not as many short-sellers in the crypto market, the bottom might not be as explosive as with stocks.

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 273.11, there is a +/- 5.411 EM into this coming Friday. This is larger than normal but only about half of what we saw last week. Remember that last week had a 90+ point SPX EM and it exceeded that move.

The EM targets for this Friday’s close is 278.52 to the upside, and 267.70 to the downside.

I don’t really have any interest in fading the EM this week, because the market is in transition.The price totally blew through the upper boundary last week and is not a good level of support/resistance because the range is not compressed, so the liquidity at these levels becomes less compressed and effective.

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:

• BIDU 23FEB 255/257.5 Debit Call Spread (1/29) entered for a $1.25 debit. This is my one left-over long from the January rally and might fail, but one heck of a bounce today.

I like call spreads on MU 16MAR 44/45 debit call spreads for $.50. We want to look for a break from the current pattern and to re-test the highs at $50; this should produce a quick 50% return.

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.