Daily Market Newsletter

February 28, 2017

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Market Commentary

Well, here we go…..tonight we’ll have Trump’s Pseudo-State Of The Union address but EVERYONE is waiting for the shoe to drop, hedging against some kind of bombshell that he’ll drop. I’m skeptical of this because this is precisely what traders have been expecting for the past three months without result.

As I describe tonight, the raised vol has put a little bit of a crimp in my non-directional positions; this is especially apparent in the Time Spreads which can form a “volatility trap” as the short-term short options gets bid up while the longer-term long option barely registers the risk. This is one more element of a Time Spread that makes it more challenging, but it’s still navigable.

If the above video does not work, please try this link.

Offensive Actions

Offensive Actions for the next trading day:

No trades for tomorrow.

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.
I have a SPY time spread which is doing well but close to adjustment; please see “time spreads” section below for how I will manage this.

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

Technical Analysis Section

Market Internals: Volume was above average today. Breadth was weak with -191 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. After several rare Full Bearish Clusters lately, no leading signals today on a pause.

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term uptrend. The RUT is in a long-term uptrend, an intermediate uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX rose 6.87% to 12.92, outside the bollinger bands. The RVX rose 9.87% to 19.03 and is inside the bollinger bands.

Fibonacci Retracements: Fibs are not in play right now.

Support/Resistance: For the SPX, support is at 2188 … with no overhead resistance. The RUT has support at RUT 1300 with no overhead resistance. 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 into exhaustion with a reading of 36. The Weekly chart is now technically exhausted with an energy reading of 33, due to the recent breakout. The Daily chart is showing a level of 28 which is super-exhausted now. It’s rare when we have all three major timeframes in exhaustion.

Other Technicals: The SPX Stochastics indicator rose to 96, overbought. The RUT Stochastics indicator fell to 84. 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 2261 and resistance at the upper band at 2394 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1350 to 1421 and price is below the upper band.

We are seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves, but a pullback to stoke up the negativity would be a good thing to see first.

Position Management – NonDirectional Trades

I have no positions in play; I will wait on the first significant pullback to allow me to secure put spreads below support.

Offense: I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.” This is the same type of price action that was so perilous to HP condors back in 2013, so let’s not fight it.

If I see price drop to the SPX 2200 level, this might be our first opportunity to sell premium against that level.

I have the following positions:

AAPL 3MAR 129/131*135/137 Iron Condor (2/13) was entered for a $.91 credit. I will need to close this position by this upcoming Friday.
SPX 10MAR 2315/2320*2370/2375 (2/17) entered for $2.50 credit. I have already entered my $2.00 GTC debit order.
AMGN 24MAR 167.5/170*180/182.5 Iron Condor (2/24) was entered for a $1.27 credit. I’m going to shoot for a $1 debit exit GTC.
RUT 24MAR 1360/1365*1425/1430 Iron Condor (2/27) entered for $2.50 credit. I will submit a $2.00 GTC debit closing order.

With all index charts at maximum exhaustion, now is the highest-probability window of opportunity for range-bound trades….however it feels positively suicidal doing so. This is usually the measure of a good setup. .

I have the following positions:

SPY 17MAR/21APR 235 Put Calendar (2/21) was entered for $1.44 debit. My action point to the upside to add a MAR/APR 241 call calendar would be if the price hits the $237.87 point on the SPY. If the vol comes back “in” tomorrow on the short option and allows me to secure at least a 5% return without hedging, then I will close the position rather than adjust with the 241 call calendar. Otherwise, a move down in price tomorrow will keep me in the single calendar and an exit could occur at any time.

The 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 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,. I had to close out my SLV FEB calls on Friday as they slipped ITM by a few pennies. I will look for the next daily exhaustion signal to sell further OTM calls against this position.
GE Did not give us much of a pullback to sell puts against.
TWTR I will look for the next cycle of puts to sell against TWTR. .
RIG I added the $12 MAR17 puts (1/30) for $.19 credit. .So far the $13 support is holding and I’d like to see if I can secure lower, deeper puts.
X – I added the MAR17 $25 puts (1/30) for $.47 credit. .We’ll look for the next dip in price to sell again.
AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit. .

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -This one is gone. Looking for the next crossover, however it will be to the downside, and the first downside crossover is usually a poor signal. .
RSI(2) CounterTrend – I’ll look for more of these in the near future as a new range approaches.
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 have no positions at this time.

I have the following position:

DIA 10MAR 199/201 Debit Put Spread (1/30) was entered for a $.94 debit. I will look for a 50% return from this position. I show this as a $1.46 credit limit.
QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit.

I have the following positions:

BIDU APR17 190/195 Debit Call Spread (1/30) entered for a $.98 debit.Understand that I do not have a “stop” in this trade. I closed down half of the contracts (2/17)for a $1.82 credit, or a net profit of $80/contract. I will hold the rest of the contracts longer-term and wait on the breakout.
TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
VLO 31MAR 67.5/69.5 Debit Call Spread (2/28) was entered for a $1.00 debit. I will look for a 50% gain from this position.

What was threatening to break out, has broken out. We might be on borrowed time with directional upside plays.

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.

Quite honestly, 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 currently have the following positions in play with this strategy:

SPY MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.
SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.