Market Summary
It has become easier to build a case for claiming stocks have found a short-term bottom. Considering all the gloom and doom that permeates the market, plus the recent deluge of negative international headline news, most of the main indexes have remained above their support level as defined by their 50-week SMA's. The DOW and S&P posted their first weekly gain in over a month; and over the last few days of the week, instead of melting away gains in the last hour of trading, prices actually finished stronger. The past few weeks' stocks have been trading range-bound between support and their 200-day SMA (which has been the recent resistance level).

Volatility is still high but has pulled back from recent 52-week highs and traditionally, summer is supposed to be the slowest trading months of the year (but as we found out last summer this is not necessarily true). Traders are taking-in-stride the negative financial news and the market appears to have drawn a line in the sand concerning how low prices will go. The market may continue trading range-bound for a while, but eventually it will break out to the upside or downside. The best bet is a downside breakout (excessive overhead resistance, light volume on up days and higher on down days, plethora of negative headline news, etc.). But we are hearing life long traders proclaim the recent market behavior is unlike any they have seen and it is clear that the market will continue to provide lots of surprises.

SPY Position Update
SPY closed $109.68 on Friday – the entire position is approx $1,300 in the black
SPY is priced ABOVE its current 14-day EMA (see SPY chart down below)
SPY is trading close to its 20-day Bollinger Band SMA (see SPY chart)
SPY is well BELOW its 50-day simple moving average (see SPY chart)
SPY is right UNDER its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) has turned neutral (See SPY chart)
Moving Average Convergence/Divergence (MACD) is turning up (See SPY chart)

SPY Bear Call Spread
This spread is approx. $920 in the black - the June 7th Couch Potato recommended closing out $115 strike short call for an approx. $1,250 profit and we are maintaining the $120 long calls. (see tables below) - We also said "... The ideal scenario is for stocks to bounce off support to recent high allowing us to sell another June Quarterly strike call; plus after the June Quarterly options expire we hope to sell July calls against these same long calls that we have in play. At the very least we have very little to lose and a nice potential gain if this play works out. The 200-day SMA appears to be the demarcation point and if prices approach this level we will evaluate selling calls again..." The SPY is very close to the price where we should able sell calls that fit our risk/reward profile.

SPY Bull Put Spread(s)
This spread is approx. $300 in the black (see tables below)
The regular June expiration date $104 strike price short put delta is -.1264 (87% probability this position will be profitable)

This spread is approx. at break-even (see tables below)
The June Quarterly expiration $104 strike price short put delta is -.2299 (77% probability this position will be profitable)

SPY Risk Analysis
The June 5th Couch Potato risk analysis is still valid "...We expect to close out our short call; therefore the only risk is prices decisively breaking below the 50-week SMA which has been the recent support level. A drop below support would threaten our short put(s) and force us to consider adjusting one or both put spreads..."

DIA Position Update
DIA closed at $102.31 on Friday – the entire position is approx. $900 in the black
DIA is priced ABOVE its current 14-day EMA (see DIA chart down below)
DIA is trading right ABOVE its 20-day Bollinger Band SMA (see DIA chart)
DIA is well BELOW its 50-day simple moving average (see DIA chart)
DIA is EVEN with its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) has turned neutral (See DIA chart)
Moving Average Convergence/Divergence (MACD) is turning up (See DIA chart)

DIA Bear Call Spread
This spread is approx. $800 in the black - the June 7th Couch Potato recommended closing out $107 strike short call for an approx. $1,250 profit and we are maintaining the $112 long calls. (see tables below) - We also said "... The ideal scenario is for stocks to bounce off support to recent high allowing us to sell another June Quarterly strike call; plus after the June Quarterly options expire we hope to sell July calls against these same long calls that we have in play. At the very least we have very little to lose and a nice potential gain if this play works out. The 200-day SMA appears to be the demarcation point and if prices approach this level we will evaluate selling calls again..." DIA is very close to the price where we should able sell calls that fit our risk/reward profile.

DIA Bull Put Spread
This spread is approx. $400 in the black (see tables below)
The regular June expiration date $97 strike price short put delta is -.1750 (82% probability this position will be profitable)

This spread is approx. $300 in the red (see tables below)
The June Quarterly expiration $97 strike price short put delta is -.2937 (71% probability this position will be profitable)

DIA Risk Analysis
The June 5th Couch Potato DIA risk analysis is still valid "...Similar to the SPY risk analysis above, we will be closing out our short call; therefore the only risk is prices decisively breaking below the 50-week SMA which has been the recent support level. A drop below support would threaten our short put(s) and force us to consider adjusting one or both put spreads..."

Exit Plan
Our put options for the regular June option expiration date expire next Friday and the June Quarterly options expire in a few weeks, therefore we closely monitor our short positions and plan on exiting if threatened.

The rules for exiting the SPY and DIA credit spreads 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 be able to hold out for a .05 bid.

If one of our short strikes is penetrated (closing price below the short put) AND after market close, if the delta associated with one of the short strikes is .55 or higher, we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price.

Final Comment
Recent Couch Potato Comment's have discussed modifying our approach to trading into our iron condor position. The trading plan is essentially a game plan that occasionally will need to be tweaked. Similar to a sports game plan where a team (or player) has a successful methodology, but the plan may need to be adjusted a little to accommodate particular opponents(s). Essentially, what we are trying to do is take what the market give us and trade what we see, not what we want. Our trading plan is still relatively straight forward, and the minor "tweaks" we made should help to continue to be successful.

Gregory Clay

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.