The August 29th Couch Potato Market Summary mentioned "... probably consider it a good sign that considering the constant deluge of unfavorable economic reports, prices have not broken down further. Maybe the best sign the market would not dip deeper is the fact that is seems this is what everyone expects. One thing you can count on with absolute certainty is that most people will be wrong about what the stock market will do..."
This adage may be in process of being confirmed again based on market performance this past week. The less-bad-is-good thing made a comeback as traders apparently decided that the jobs report, PMI and ISM data (along with some short covering) justified breaking the four week string of losses.
The trading range that developed starting early this summer is still in place and the best bet is that it should continue for a while longer. Volatility has moderated, but there is still much uncertainty concerning where the economy is headed. The folks in White House, Congress, federal regulators all seem to be desperately floundering in attempting to jump-start the economy. Political campaign season is in full bloom which suggest for the near future we can expect a lot of chest thumping and partisan rhetoric, but minimal meaningful legislation. Businesses are profitable and are awash in cash, the timing may be ripe for a mergers and acquisition splurge. Eventually it will change, but right now the market appears content to fluctuate between the top and bottom of the recent trading range. As we have been harping on recently, for our trading style this is all good.
SPY Position Update
SPY closed $110.89 on Friday â€“ the current position is approx. $1,000 in the black
SPY is 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 ABOVE its 50-day simple moving average (see SPY chart)
SPY is priced just BELOW its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) turned bullish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is turning bullish (See SPY chart)
SPY Bull Put Spread
The August 19th Couch Potato recommended a September expiration month put spread
This spread is approx. $1,000 in the black (see tables below)
$101 strike price short put delta is -.0430 (96% probability this position will be profitable)
SPY Risk Analysis
We have not had an opportunity to open a call spread, therefore the only risk is a price crash threatening our $101 strike price short put.
DIA Position Update
DIA closed at $104.58 on Friday â€“ the position is approx. $1,200 in the black
DIA is ABOVE its current 14-day EMA (see DIA chart down below)
DIA is trading ABOVE its 20-day Bollinger Band SMA (see DIA chart)
DIA is ABOVE its 50-day simple moving average (see DIA chart)
DIA is priced ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) turned bullish (See DIA chart)
Moving Average Convergence/Divergence (MACD) is turning bullish (See DIA chart)
DIA Bull Put Spread
The August 25th Couch Potato recommended a September expiration month put spread
This spread is approx. $1,200 in the black (see tables below)
$96 strike price short put delta is -.0339 (97% probability this position will be profitable)
DIA Risk Analysis
Similar to the SPY above risk analysis above, we have yet to do a call spread, therefore the only risk is relates to our $96 strike price short put.
When trading resumes next week we expect to immediately close out the SPY and DIA put spreads with a nice gain (unless stock prices pull back).
The August 29th Couch Potato Final Comment mentioned "...support basically held up as prices danced around it for a few days and may be turning up. If the major indexes can somehow break through significant overhead resistance, then we should be able to initiate credit spreads to complete the iron condor set up. We will probably consider a September quarterly option expiration call spread or maybe an October/September calendar spread â€“ it depends on how stock prices move over the next few weeks..." This past week went in our favor - if the summer pattern continues prices should advance to near term resistance before stalling. If stocks follow up on this past weeks bullish action we should be able to open call spread(s) over the next few trading days.
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.