Sell, sell, sell...is there a bottom to this free-fall?
As if China concerns were not enough the previous week, the selloff continue into the second week of the new year. The broad market closed sharply lower Friday, locking in the worst 10-day start to a calendar year ever, as oil prices plunged and investors worried about slowing growth in the U.S.
SPX closed down 44.85 points at 1876.99, -2.6% and managed to break the August lows intra-day.
The SPX chart below presents an ugly picture, to say the least.
SPX 6 month chart
The volatility index VIX jumped up 12.82%, closing up 3.07 points at 27.02. The "fear" index remains well above the historical average of 20.
VIX 6 month chart
We only have one open position on this weekend; this is a very dangerous market and not safe for any new position entry, in my opinion, until things settle down.
SPY February Iron Condor
This position was entered on Monday, January 11. Details are below:
- SOLD SPY February 205 Calls, .58 Credit.
- BOUGHT SPY February 210 Calls, .14 Debit.
- SOLD SPY February 175 Puts, 1.45 Credit.
- BOUGHT SPY February 170 Puts, .99 Debit.
Order was filled as an "Iron Condor" for $.90 net credit (all four legs).
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this trade: $410.
Target Gain: 10%of margin/risk.
Max loss: 15% of margin/risk.
Below is the risk graph as of the close Friday:
SPY February Iron Condor
Despite the selloff, this position is holding its own and is currently +$19. We will continue to keep the position open as long as SPY remains between the short strikes. The position will be closed at target gain of 10%, or if SPY reaches either short strike.
Below is the SPY chart showing the short strikes:
SPY 6 month chart
Next week's economic news is summarized below:
Markets closed for Martin Luther King Day
9:00 pm China GDP and Industrial Production
10:00 am Housing Market Index
8:30 am Consumer Price Index
8:30 am Housing Starts
7:45 am ECB Rate Decision
8:30 am ECB Press Conference
8:30 am Jobless Claims
8:30 am Philadelphia Fed Business Outlook Survey
9:45 am PMI Manufacturing Index Flash
10:00 am Existing Home Sales
Next week is the planned entry for the RUT Iron Butterfly for the February monthly cycle. Monday will be 32 days to expiration; however, with the market as parabolic as it is right now, I may pass on trade entry until the market resumes some sense of normalcy. As I mentioned above, I feel this is a very dangerous market for new trade entry unless you are playing directional plays. Even then, the whipsaw risk is huge with the magnitude of the intra-day moves we are seeing so far this month. We'll see how the market looks early next week and I will post a trade update on a possible RUT trade for February.
Please continue to practice patience and due diligence in capital preservation during this treacherous market environment. We must at all times keep risk manageable, even if it means holding cash as our position and waiting for the market to tell us it is safe to enter a new income trade. Some traders say, "if I don't trade I can't make any money!" My answer to that statement is "yes, but you can't lose any money either". Stay safe.
Updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,