Weekend Portfolio Analysis (April 18, 2015)

Market Conditions

The markets were relatively quiet this week with the indexes quietly attempting to reclaim their recent highs until Friday where fast selling clobbered the major equity indexes. The SPX opened the week at 2102.03 and closed on Friday at 2081.18, down 20.85 or 0.9%. Volume was light most of the week, although it did increase on Friday fueled partially by options expiration. The SPX is now, once again, just below the 50-day moving average after Friday’s liquidation break.

Chart_041715_SPX

U.S. economic news this week was fairly light. The CPI for the month of March met expectations and consumer sentiment for April topped expectations. Overseas, the Greece debt crisis has escalated due to fears of default. Also adding to investor concerns is China’s weakening economy.

Crude Oil rallied this week on data this week showing the smallest weekly U.S. inventory build since January 2nd. That followed reports of U.S. production beginning to pull back. Crude opened the week at 51.81 and closed Friday at 57.73, up $5.92 per barrel or 11.4%.

Chart_041715_CL

Trade Activity This Week

On Monday, I placed two trades; an earnings trade in JNJ and a weekly SPX credit put spread. Both trades are detailed in the article, Two Trades for April 13, 2015. On Tuesday, I closed the JNJ earnings trade for a $43.00 profit (8.6% return on capital) after commissions.

For several weeks, I have been trying to leg into another long-term iron condor position. On Wednesday, I finally was filled. I sold an AUG5 SPX 2275/2300 credit call spread for $1.90

On Thursday, I bought a Microsoft (MSFT) straddle. This is an earnings trade, but not in the typical fashion that I trade earnings.

Trade Details:

BUY 1 MSFT May 15 42 Call @ 1.05
BUY 1 MSFT May 15 42 Put @ 1.10
Debit: 2.15 ($215 per contract)

Normally, I will sell options just before the earnings announcement when implied volatility is very high and will buy back the position after the earnings announcement and the coinciding collapse in implied volatility. In this case, I am doing the opposite. MSFT earnings are on April 23rd. I have purchased the straddle with the hope that implied volatility will expand as we get closer to the earnings announcement. The trade will be exited prior to the announcement. This is an experiment and I am not risking much on this trade.

Straddle_041615_MSFT

On Friday, with the increase in volatility and drop in the markets, I was able to sell the AUG5 SPX 1725/1700 credit put spread for $1.50, completing the iron condor position for August 31 expiration. The total premium received for the iron condor was $3.40 ($340.00) per contract. Also, on Friday I closed the JUL5 2275/2300 credit call spread for a profit of $134.00 (5.36% return on capital) after commissions.

Plan For Next Week

The portfolio is currently over 40% in cash and is up 8.93% for the year versus 1.01% for the S&P 500 (see Trading Results).

Next week is not a big news week, however it is a very busy week for earnings. Some of the companies that I will be looking at for possible earnings trades include: IBM, CAT, VZ, EBAY, FB, BA, AMZN, GOOGL, MSFT and SBUX.

 

  • Jonathan

    Great job Aram. If we drop further next week, it will trigger my oversold condition. I am looking to sell some credit put spreads on SPX and/or RUT if that happens. I will sell credit put spreads on SPX if it goes below 2050 and RUT goes
    below 1225. I am interested in selling July SPX 1750/1740 cps and June
    RUT 1050/1040 cps.

    @lienjonathan

    • Aram Basmadjian

      Sounds good, Jonathan! I will be looking for additional opportunities if the market continues down, as well.

  • Ven

    Aram-

    you could also experiment with a dbl diagonal with MSFT ( if you are expecting IV expansion )
    It has worked for me in the past wonderfully.

    • Aram Basmadjian

      Thanks, Ven! I will definitely look into that.

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