'Tis the season for the Santa Claus Rally after another volatile trading week.
The benchmark index SPX posted its best weekly gain in nearly a year.
Comments from a number of Federal Reserve officials, along with minutes from the FOMC October meeting, suggested that the path of interest-rate increases is likely to be gradual, which helped soothe fears that the first hike in nearly a decade would shake the market.
SPX closed Friday up 7.93 points or .4% at 2089, representing a weekly gain of 3.3%. This gain was the best since December 19, 2014.
Below is the current open position status:
SPX Weekly Iron Condor
This November 4 weekly position was opened Friday; trade details are:
SOLD SPX November 4 2125 Call, 1.20 credit.
BOUGHT SPX November 4 2135 Call, .50 debit.
SOLD SPX November 4 2045 Put, 2.55 credit.
BOUGHT SPX November 4 2035 Put, 1.90 debit.
Order was filled as an "Iron Condor" for $1.35 net credit (all four legs).
Margin/Risk is calculated by the width of the wings ($1,000), less credit received.
Margin/Risk for this week's trade: $865.
Target Gain: 7% of margin/risk or $60.
Max loss: 10% of margin/risk or $86.
The risk graph showing the position as of the close is below:
SPX November 4 Weekly Iron Condor
As of the close Friday, the position is +$50, the debit to close is currently $85. The position is fairly flat delta and centered. Our OCO "good to cancel" order remains in place to exit the position for target gain or max loss.
Below is the 6 month chart showing the short strikes:
SPX 6 month chart
SPY November Iron Condor
This monthly position was opened on Monday, November 9. Trade details are below:
- SOLD SPY December 217 Call, .48.
- BOUGHT SPY December 222 Call, .11.
- SOLD SPY December 196 Put, 1.17.
- BOUGHT SPY December 191 Put, $.72.
Order was filled as an "Iron Condor" for $.82 net credit (all four legs) .
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this trade: $418.
Target Gain: 10% of margin/risk.
Max loss: 15% of margin/risk.
Below is the risk graph of this position as shown on my broker's platform:
SPY December Iron Condor:
SPY closed Friday at 209.50, pretty much flat for the day. The position recovered this past week with the rally, and is +$35.
Below is the SPY chart showing the short strikes:
SPY 6 month chart
The guidelines call for the position to remain open until target gain is reached, as long as SPY stays between the short strikes. They also call for exiting at the pre-set max loss, or if SPY reaches either short strike. It is recommended to have a "good to cancel" conditional order in to exit the position for target gain or max loss. Please follow your broker's specific guidelines on the setup of conditional orders as they can vary by broker.
RUT December Iron Butterfly
This monthly position was opened on Monday, November 16. Trade details are below:
- SOLD RUT December 1140 Call, 29.60 credit.
- BOUGHT RUT December 1190 Call, 8.00 debit.
- SOLD RUT December 1140 Put, 26.70 credit.
- BOUGHT RUT December 1090 Put, 11.60 debit.
Order was filled as an "Iron Condor" for $36.70 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT November 1235 Call
Order for extra long call was filled for $1.30.
Margin/Risk is calculated by the width of the wings ($5,000), less credit received, plus the cost of the extra long call.
Margin/Risk for this trade: $1,460.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
RUT continued to march up, and the position was adjusted to the upside just one day after trade entry. Adjustment details follow:
BOUGHT RUT December 1140 Call, 32.90 debit.
SOLD RUT December 1190 Call, 8.80 credit.
SOLD RUT December 1160 Call, 21.30 credit.
BOUGHT RUT December 1210 Call, 4.10 debit.
Net debit (all four legs): $6.90
On Wednesday, RUT continued to rally, fueled by the FOMC minutes. The position was adjusted for the second time on the upside as follows:
Upside Adjustment #2:
BOUGHT RUT December 1160 Call, 27.05 debit.
SOLD RUT December 1210 Call, 5.40 credit.
SOLD RUT December 1180 Call, 16.00 credit.
BOUGHT RUT December 1230 Call, 2.10 debit.
Net debit (all four legs): $7.75
The position is now a 40-point wide Iron Condor, with the short call strike at 1180, and the short put at the original 1140 strike.
Below is the risk graph as of the close Friday:
RUT December Iron Condor:
RUT closed Friday at 1175, up 8.42 points or .72%. The position is at breakeven, and would benefit from a slight pullback next week.
The next adjustment trigger points will be at either short strike. Since the position has been adjusted twice, if either adjustment trigger is reached, we will evaluate whether it is better risk management to adjust again, or exit the trade. Remember these are guidelines, not concrete rules, and can be modified as a trader chooses depending on market opinion.
Next week's economic news is summarized below:
9:45 am PMI Manufacturing Index
10:00 am Existing Home Sales
8:30 am GDP
10:00 am Consumer Confidence
8:30 am Durable Goods Orders
8:30 am Jobless Claims
8:30 am Personal Income & Outlays
10:00 am New Home Sales
10:00 am Consumer Sentiment
10:30 am EIA Petroleum Status Report
Markets Closed, U.S. Thanksgiving Holiday
1:00 pm Markets Close Early
For those unfamiliar with the strategies, the trade management guidelines for all the Couch Potato Trader plays were most recently published on August 20, 2015, and can be found here:
Link to Articles
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,