Santa Claus appears to be missing his rally so far; oil's free-fall spooked the market.
Just days before the FOMC is likely to announce the first interest rate hike in nearly 10 years, investors continue to be spooked by falling prices in crude oil. The broad market closed sharply down on Friday; the benchmark index SPX posted the biggest weekly loss since August.
SPX closed down 39.86 points Friday, 1.9%, at 2012.30. This represented a 3.8% loss for the week.
The selloff Friday took SPX out of entry range for the weekly Iron Condor, so we do not have a weekly on for the December cycle.
SPY January Iron Condor
This monthly position was opened on Monday, December 7. Trade details are below:
- SOLD SPY January 216 Call, .50 Credit.
- BOUGHT SPY January 221 Call, .10 Debit.
- SOLD SPY January 197 Put, 1.36 Credit.
- BOUGHT SPY January 192 Put, .84 Debit.
Order was filled as an "Iron Condor" for $.92 net credit (all four legs) .
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this trade: $408.
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 January Iron Condor:
SPY closed Friday at 201.88, down 3.9 points. The position is down ($42), and will benefit from a rally.
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.
As the market sold off, the CBOE's volatility index VIX rose. The "fear" index closed at 24.39, a gain of over 26% for the week. The 6 month chart is below; the VIX is now back above the historical average of 20.
VIX 6 month chart
Next week's economic news is highlighted by the FOMC meeting and subsequent on Wednesday. A summary is below:
FOMC meeting begins
8:30 am Consumer Price Index
8:30 am Empire State Manufacturing Survey
10:00 am Housing Market Index
8:30 am Housing Starts
9:15 am Industrial Production
9:45 am PMI Manufacturing Index
10:30 am EIA Petroleum Status Report
2:00 pm FOMC Meeting Announcement
2:30 pm Fed Chair Press Conference
8:30 am Jobless Claims
10:00 am Philadelphia Fed Business Outlook
Quadruple Witching/Options Expiration
Next week is the planned entry for the RUT Iron Butterfly for the January monthly cycle. However, with the FOMC meeting looming and subsequent announcement on Wednesday, I feel it is too risky to enter this monthly position until after the dust has settled. We will look at entering later in the week, depending on market conditions and the risk:reward depending on credit available.
For those unfamiliar with the strategy, 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,