Weekend Portfolio Analysis (May 23, 2015)

Market Conditions

It was a pretty quiet week in the markets leading into the Memorial Day Weekend. The S&P 500 remained range-bound opening on Monday at 2122.73 and closing Friday at 2126.06, up 3.33 points or 0.2%. On Wednesday, the FOMC released the meeting minutes revealing that some participants believe that the weakness observed in the first quarter could extend into the second quarter with many officials characterizing a rate hike in June as “unlikely.” However, the minutes did not rule out a near-term rate hike in its entirety. Ms. Yellen stated that in order to begin normalizing policy, the Fed needs to see continued improvements in labor market conditions and there needs to be reasonable confidence that inflation will move back toward the 2.0% target over the medium term.


Similar to equities, crude oil has been trading sideways again this week, taking a break from the rally over the past seven weeks. For the week, WTI crude lost 1.04% opening at $60.62 on Monday and closing at $59.99 on Friday.


Trade Activity This Week

I was traveling most of this week, so I did not do much trading earlier in the week. On Monday, I made the second adjustment to the BBY position by rolling the call down from the 36.49 strike to the 34.49 strike. This resulted in a $0.76 debit. Keep in mind that the previous week I had rolled down the puts for a $1.09 credit. The call was rolled down to maintain a delta-neutral position. With earnings before the open on Thursday, the position needed to be closed no later than Wednesday. Tuesday, I was on the road all day, so I entered a GTC order that morning before leaving the hotel. However, I entered the order incorrectly and ended up buying a second BBY $34.49 straddle for $3.02. Rather than immediately reverse the position, I decided to just let it sit. On Wednesday, I sold both straddles for $3.09 each. After adjustments and commissions, the trade net me a profit of $40 (6.71% return on capital). This was definitely not a strong winner, but it was a good exercise in learning how to adjust a long straddle as the underlying moves around. This strategy of buying straddles leading up into earnings is one that I have not done very often and am not real comfortable yet with the trade.

On Wednesday, I entered a new weekly SPX trade. Again, due to my concern about the strength of this market, I am no longer placing intra-week credit spreads. I prefer to have at least 21 days prior to expiration to reduce the gamma risk. I sold the SPX Jun 1970/1945 put vertical for $0.90. I will close the spread when it reaches 50% of potential profit.

Also on Wednesday, I sold a /CL Aug 78 call for $0.08 after the crude oil inventories report was released. Oil has appeared to stabilize and if the dollar continues to strengthen, the price of crude should drop. Typically, I usually am fairly non-directional with the /CL trades, but in this case, I have a fairly strong bearish bias, at least for the short-term.

Thursday, after the market closed, Hewlett-Packard (HPQ) reported earnings. The setup for this earnings trade met all of my criteria. Just before the market closed, I sold the May4 45 straddle for $1.93. Earnings were pretty much in line with expectations. On Friday morning, I bought back the straddle for $0.61 resulting in a $129 profit (14.79% return on capital) after commissions. This trade was a nice way to end the week!

Plan For Next Week

The portfolio is currently invested at approximately 40%. The portfolio is now up 18.95% for the year versus 3.3% for the S&P 500 (see Trading Results). May has been an incredibly profitable month for trading. This is due to the sideways action in the market which is a great environment for premium sellers. Next week is a short trading week due to the Memorial Day holiday. However, quite a bit of economic data is scheduled for release which could result in an expansion in volatility.

Have a great Memorial Day Weekend and remember all of those that have sacrificed their lives for this great country.

  • Jonathan

    Premium sellers are making a killing in this market environment. Let see if the market stays range bound for most of the summer. In my backtesting going back to 1990, the market can stay boring for a long time.

  • The Lazy Trader

    Excellent performance Aram. Just excellent and what is more important, you have done it being conservative and with small position sizes. Keep it up! You’re almost up 19% and we haven’t even finished the first half of the year.