Reaching for the stars
The broad market continued its march higher Friday to yet another record closing, after blowout earnings were announced from tech giants such as Amazon, Microsoft, Google, and Intel. Also fueling the rally was the GDP report released before the open, which indicated the US economy expanded by 2% despite the slowdown in areas severely affected by the active hurricane season.
The benchmark index SPX closed up +20.67 points at 2581.07, an increase of .81%.
SPX 6 month chart
Volatility remains at record lows, the VIX closed yesterday at 9.80, -1.50 points or 13.27%.
VIX 6 month chart
Below is the open position status:
SPY Monthly Iron Condor for November
This position was opened on Monday October 9; details below:
- SOLD SPY November 259 Call, .67 credit.
- BOUGHT SPY November 264 Call, .13 debit.
- SOLD SPY November 247 Put, 1.00 credit.
- BOUGHT SPY November 242 Put, .65 debit.
Order was filled as an "Iron Condor" for $.89 net credit (all four legs) .
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this trade: $411.
Target Gain: 10% of margin/risk.
Max loss: 15% of margin/risk.
Below is the risk graph of the position as of the close Friday:
SPY November Iron Condor:
SPY closed Friday at 257.87, the relentless rally has put the trade under water; it is currently -25, and less than two points from the short strike. With any help from the market, we will get a pullback next week which will help the position.
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.
New "Test Kitchen" RUT Put Credit Spread for December 15
This new trade we are testing was opened Tuesday, October 10; details below:
SOLD RUT December 15 1400 Put, 9.80 credit.
BOUGHT RUT December 15 1370 Put, 7.20 debit.
Order was filled as an "Iron Condor" for $2.65 net credit (all four legs).
Margin/Risk is calculated by the width of the wings ($3,000), less credit received.
Margin/Risk for this week's trade: $2,735.
Think or Swim is currently showing the position +$93, so performing well so far. We will likely add this play to the regular portfolio with the next entry in November.
Below is the risk graph of this week's position as of the close:
RUT December 15 Put Credit Spread:
Below is the RUT chart showing the short strike:
RUT 6 month chart
The trade is left in play to work until:
1) If the loss reaches $250, the position is closed.
2) When the next monthly cycle is at the 65 days to expiration window, the position is closed, which would be approximately November 14.
While we patiently wait until the VIX rises to where the weekly SPX Iron Condor has a decent risk:reward, I have been testing another weekly trade, a Call Credit Spread on VXX. For those who are not familiar with VXX, it is an ETN (Exchanged Traded Note) based on the VIX. This fund is offered by I Path, and a complete description of the fund and recent performance can be found here:
VXX Exchange Traded Note
We all know that volatility could rear its ugly head at any time; so this is not a trade that I will recommend be traded in a large size. I have been trading it in one of my personal accounts, on a very small basis, for the last 6 weeks with an average return of 4 - 5% per week. I will introduce the trade in the upcoming week for those interested in a small weekly play. The basics of the trade will be as follows:
- Entry: 7 or 8 days to expiration.
- SELL VXX Call with delta in the .25 - .30 range.
- BUY VXX Call 3 or 4 points higher.
- We will look for a credit of .25 - .30
- Gross margin is $100 for every point wide the spread is. If the spread is 3 points wide, the gross margin will be $300.
- We will have a modest target gain of 5%, with a stop loss of 8%.
The first trade entry will be posted either Thursday or Friday, depending on overall market conditions and available credit. The entry will be for the November 10 weekly cycle.
Next week's economic news, is summarized below:
Monday, October 30
8:30 am Personal Income & Outlays
FOMC Meeting Begins
9:00 am S & P Case Shiller HPI
9:45 am Chicago PMI
10:00 am Consumer Confidence
8:15 am ADP Employment Report
9:45 am PMI Manufacturing Index
10:00 am ISM Manufacturing Index
10:00 am Construction Spending
10:30 am EIA Petroleum Status Report
2:00 pm FOMC Meeting Announcement
8:30 am Jobless Claims
8:30 am Productivity & Costs
8:30 am Monthly Employment Report
8:30 am International Trade
For those unfamiliar with the strategies we trade, the trade management guidelines for all the Couch Potato Trader plays 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,