Market Summary
The January 2nd Couch Potato Market Summary mentioned "... For our Couch Potato plays we are primarily concerned about the next two weeks - since our options expire in only the second week of January we should be prepared to do a trade adjustment earlier than normal if one of our trades goes against us." A few weeks ago stocks were trading range bound, however as indicated in the charts below, prices have began to climb, especially the S&P 500. The first week of the year market surge is threatening our short calls and we need to make sure that we perform the necessary adjustments to protect ourselves.

SPY Position Update
Listed below is the status of our SPY Iron Condor trade as of Friday January 8th. This position has been open for 30 days:
The entire position is $830 in the black
SPY closed at $114.57
Both 30-day historical volatility and implied volatility numbers are low - both volatility numbers are still near 52 week lows, which is bullish
SPY is priced ABOVE its current 14-day EMA (see SPY chart down below)
SPY is trading ABOVE its 20-day Bollinger Band SMA (see SPY chart)
SPY is trading ABOVE its 50-day simple moving average (see SPY chart)
SPY is well ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is bullish (See Spy chart)
Moving Average Convergence/Divergence (MACD) is bullish (See Spy chart)

SPY Bear Call Spread
This spread is approx. $150 in the red (see tables below)
Our $115 strike price short call delta is .4311 (57% probability this position will be profitable)

SPY Bull Put Spread
The December 4th Couch Potato recommended closing out the entire put spread for an approx. $980 profit (see tables below)

SPY Risk Analysis
Since we closed out the short $104 strike put, the only risk we have to manage is the $115 strike price sold call. The risk associated with the sold call will be evaluated and resolved based on the Exit Plan.

The SPY finally made a firm break above the $112 50% Fibonacci retracement level and is still trading near the upper trend line of the bull channel that has been in place since the beginning of October. The S&P closed higher every day this week and if this trend continues we will probably need to do a few trade adjustments prior to next Friday's option expiration date. Our $115 strike short call is at risk and unless stocks pull back over the next day or so we need to make a move to protect our gains for the month. It is in our best interest to control our destiny versus just letting the market dictate whether we win or lose!

DIA Position Update
Listed below is the status of our DIA Iron Condor trade as of Friday January 8th. This position has been open for 30 days:
The entire position is $1,380 in the black
DIA closed at $106.11
Both 30-day historical volatility and implied volatility numbers are low - both volatility numbers are still near 52 week lows, which is bullish
DIA is priced ABOVE its 14-day EMA (see DIA chart down below)
DIA is trading ABOVE its 20-day Bollinger Band SMA (see DIA chart)
DIA is trading ABOVE its 50-day simple moving average (see DIA chart)
DIA is well ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is bullish (See DIA chart)
Moving Average Convergence/Divergence (MACD) is neutral (See DIA chart)

DIA Bear Call Spread
This spread is $705 in the black (see tables below)
Our $108 strike price short call delta is .1512 (85% probability this position will be profitable)

DIA Bull Put Spread
The December 4th Couch Potato recommended closing out the entire put spread for an approx. $675 profit (see tables below)

DIA Risk Analysis
Since we closed out the short $98 strike put, the only risk we have to manage is the $108 strike price sold call. The risk associated with the sold call will be evaluated and resolved based on the Exit Plan.

Until there is a pullback the market direction is still bullish and if this trend continues the risk is that the price might threaten our $108 short call; therefore, over the next few days we will be looking for an opportunity to close out our Bear Call spread.

Exit Plan
The rules for exiting both Bear Call spread positions (SPY and DIA) are:

Anytime the market maker is willing to accept a limit price of less than .11 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread. However, if it is a few days prior to the expiration date, we may hold out for a .05 bid.

If the delta associated with the short call rises to .50 we will look to close out this spread (buy the short contracts, sell the long).

On option expiration day, if rules 1 and 2 above have not been activated, let the Bear Call spreads expire worthless and we keep the entire sold premium for any open contracts where the short strikes are not threatened.

We initiated both Iron Condor positions (SPY and DIA) as separate orders with four legs each. As mentioned above we already closed out all the Bull Put spread contracts. The Bear Call spreads will be closed out as a separate order following the Exit Rules described above.

Final comment
As expected, traders returned to work this week and trading volume increased. Stocks had a good first week of the year, but more importantly for us, volatility remained relatively low. January options expire on Friday and as mentioned previously, the obvious best-case scenario for us is another week similar to the past few weeks and we should be able to close-out January with nice gains!

Gregory Clay

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Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.