Investors shook off any fear of the potential US Government shutdown; the reality is that it did occur at midnight this morning.
The political buzz from Washington yesterday was the potential shutdown by the US Government. The House passed the bill to avoid a shutdown Thursday evening, but Friday night the Senate failed to do the same. What effect this will have on the market next week remains to be seen, it could very well likely be ignored and the march may continue higher. However, there is the chance that we could see a dip from these lofty levels, so we will stay tight on risk management as usual.
The broad market ended the week on a bullish tone once again; all the major indices posted record gains.
The benchmark index SPX closed up +.44%, advanced by 12.27 points to close at 2810.30. This represented the third weekly gain, and a 5.1% gain so far this year.
SPX 6 month chart
VIX 6 month chart
The VIX rose slightly this week and closed Friday at 11.27, -.95 points or -7.77%.
Below is the open position status:
VXX Weekly Call Credit Spread for January 26 expiration
This position was opened on Thursday, January 18; details below:
SOLD VXX January 26 29.5 Call, .46 credit.
BOUGHT VXX January 26 34.5 Call, .17 debit.
Order was filled as a "Vertical" for $.29 net credit (all four legs).
Margin/Risk is calculated by the width of the wings ($500), less credit received.
Margin/Risk for this week's trade: $471.
- Target Gain: 3% of margin
- Max Loss: 6% of margin
Below is the risk graph as of the close yesterday:
VXX January 26 Call Credit Spread:
VXX closed yesterday at 26.82. The position is currently showing +$8.00, our orders remain in place to exit for a debit of $.14 which would be target gain, or for the max loss of 6%.
Below is the VXX chart showing the short strike:
VXX 6 month chart
RUT Iron Butterfly for February:
This position was opened on Tuesday, January 16; details below:
Order executed for this new position:
- SOLD RUT February 1590 Call, 22.95 credit.
- BOUGHT RUT February 1640 Call, 6.10 debit.
- SOLD RUT February 1590 Put, 24.30 credit.
- BOUGHT RUT February 1540 Put, 9.00 debit.
Order was filled as an "Iron Condor" for $32.15 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT February 1730 Call
Order for extra long call was filled for $.80
Margin/Risk is calculated by the width of the wings ($5,000), less credit received, plus the cost of the extra long call.
Margin for this trade at entry: $1,865.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
Below is the risk graph as of the close Friday:
RUT February Iron Butterfly:
RUT closed Friday at 1597.63, with a major gain of 20.90 points or 1.33%. The position is currently $33, and we will continue to manage it according to the guidelines.
The adjustment trigger points for this position are if RUT moves up or down 10 points from the center of the Iron Butterfly. Adjustment trigger on the call side would be if RUT reaches 1600. Since we have the extra long call, we can be a little patient with the adjustment depending on the position status and overall market conditions. The downside adjustment would be at approximately 1580, depending on market conditions and position status at the time the trigger is reached. As the trade is also a bit more "friendly" on downside moves, we can be patient as well on making the downside adjustment if the trigger is reached. Remember these are guidelines, not concrete rules, and can be modified as a trader chooses depending on market opinion.
RUT Put Credit Spread for March 16:
This position was opened on Tuesday, January 9; details below:
SOLD RUT March 16 1470 Put, 10.10 credit.
BOUGHT RUT March 16 1440 Put, 7.30 debit.
Order was filled as a "Vertical" for $2.80 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: $2,720.
Target Gain: 5% of margin
Max Loss: 7% of margin
Below is the risk graph of this week's position as of the close Friday:
RUT March 16 Put Credit Spread:
The position is currently +$112, so doing well with the continuing rally.
Below is the RUT chart showing the short strike:
RUT 6 month chart
Next week's economic news is summarized below:
Monday, January 22 and Tuesday, January 23
9:45 am PMI Composite Flash
10:00 am Existing Home Sales
10:30 am EIA Petroleum Status Report
8:30 am Jobless Claims
8:30 am International Trade in Goods
10:00 am New Home Sales
8:30 am Durable Goods Orders
8:30 am GDP
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,