Recent Trading Activity

– No Activity.

I tried to close the September SPX 2430/2440 Credit Put spread (remainder of a former Elephant) but was not lucky trying to close it for 0.05 debit. I also intended to close the Call side of the October RUT Elephant, but had no luck either as I wanted a net +$400 gain on that side. Maybe I was a little greedy. So, summing up, I tried to close these two at different points in the week but did not get filled. I didn’t sacrifice price limits on the orders as I was/am not terribly hurried to close these positions.

Market Conditions
(Click on image to enlarge)

Stochastics: 59 (Neutral. Down from 74)
McClellan: -7 (Neutral. Up from -61)
Stocks above their 20 DMA: 44% (Neutral. Up from 42%)

No man’s land

The bearish divergence recently spotted, played out early in the week but not a lot of progress was made to the downside with a low of 2798.11 on Monday. That seems to be over. The old 2,800 region, which was resistance for six months is now support. As for the very short term, now the oscillators started to point upwards, so, momentum favors some upside action this week.

We just started the month of August. Historically one of the weakest in the year. Since 1950, we’ve had 37 up Augusts, vs 31 down Augusts, with an overall average return of -0.27%. August tends to also be a slow month with low volumes, which typically start to improve by the end of the Summer. In the technical picture the S&P is about 2.5% higher than its 50-day average. Although not a stretch, it doesn’t leave a lot of room for a mega rally right now. The 2,870 level around all-time highs should be a temporary ceiling that will offers some sort of resistance. Especially if reached this week.

The Russell Index:
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Still weaker than the S&P500 and very close to its 50-day average, leaving more upside room. The All-time highs in the 1,710 region have acted as strong resistance three times before, but it is barely 2% away. Seems like a reachable target at some point before the end of the year. Potential support, also horizontal in the 1615-1630 region.

Current Portfolio:

The SPY Calls and SVXY Calls expire in December and January of next year. All bullish bets on a market rebound.

Let’s now look at the income plays.

Aug. SPX 2430/2440 Elephant Put side
Net credit: $1,200. Two weeks to expiration
(Click on image to enlarge)

Defense
lines: 2,500 to the downside (adjust Put side). All the money has been made here. Good time to close it already.

Aug. RUT/IWM 1500/1510 – 154 Elephant Put side
Net credit: $1,100. Two weeks to expiration
(Click on image to enlarge)

Defense
line: 1,540 to the downside (adjust Put side).

Sep RUT/IWM 1530/1540/1795/1805 – 158/180
Net Credit: $1481. Seven weeks to expiration
(Click on image to enlarge)

Defense lines: 1,590 to the downside (adjust Put side) and 1,770 to the upside (Close all Calls at a loss. Keep riding Put side, whose credit is greater than the loss to be suffered on the Call side, resulting in an overall net winning trade). Looking good here. Call side has made most of its potential max profit and it is a good candidate to be taken off.

Action Plan for the Week

– Once again, I’ll see if I can close the August SPX Elephant Put side (only remaining part of that Elephant) for 0.05 debit.

– I’ll try close the Call side of the September RUT Elephant. The credit obtained on that side was $448 on entry and the gain is already $400. Closing it would give an opportunity to re-open it on a market rebound, since this position is still 7 weeks away from expiration.

– If the market reaches an oversold condition, I’ll initiate a September SPX Credit Put spread in the 10-delta territory of prices. If no oversold condition is materialized (likely), then I’ll just go with an SPX Elephant. Current candidate is 2665/2675/2935/2945  , 0.60 credit per Put credit spread, 0.90 credit per Call credit spread. Number of Credit spreads, 20 on the Put side, 8 on the Call side. And all that hedged with 8 SPY Calls, strike 294 plus 1 SPY Put, strike 270. As usual, these strike prices and credits may vary depending on how the markets move during the week. For ideas on how to play the Elephant on smaller accounts, read the Unbalanced Elephants Guide.

Economic Calendar
Pretty light week in terms of economic releases. Typical for the second week of the month.

Wednesday: China’s CPI and PPI.
Thursday: US PPI. Japan’s GDP.
Friday: US CPI

Good luck this week my friends,
LT

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