Weekend Portfolio Analysis (August 15, 2015)

Market Conditions

China’s abrupt devaluation of its yuan made for a disruptive week for the markets — currencies, commodities and stocks. Despite the market volatility, the S&P 500 Index (SPX) managed to end the week with a modest gain, opening on Monday at 2080.98 and closing on Friday at 2091.54, up 10.56 or 0.51%. It seems that no matter what happens in the markets technically, fundamentally, or volatility-wise, the SPX continues to be trapped in the 2040-2135 trading range.


Crude oil futures continued to drop over the past five days for a seventh weekly loss. /CL opened at $43.58 on Monday and closed at $42.18 per barrel on Friday, a decline of $1.40 (or 3.21%). On Friday, oil traded as low as $41.35, its lowest point in over six years. Pressure on prices is the result of a perfect storm of global supply surplus, the increase in output by OPEC last month to the highest level in more than three years, fears about the economy in China and unexpected shutdowns of refineries in the U.S.


Trade Activity This Week

As earnings season has started to wind down, so has my trading activity. Additionally, as I prepare for a week-long vacation, I am trying to get positions closed so that I don’t have to worry about the portfolio.

As the market started off the week with a big rally, I was able to close out the /ES Dec 1600 put that I had sold the previous trading day (Friday) for a quick $59.68 profit (7.73% return on capital) after commissions. Crude Oil also had a brief rally on Monday allowing me to exit the /CL Sep 53/38 strangle for a nice $85.76 profit (7.79% return on capital).  Finally, I also closed the $SNDK Aug 60 put for a $57 profit (5.34% return on capital). This was a hedge to offset some of the loss incurred on the SNDK earnings trade. The bottom line is that after closing this final trade in SNDK, the total loss on the earnings trade was reduced to $124.00 (vs. $181.00).

On Tuesday, prior to the close, I sold a $CREE Aug2 30/22 strangle. This was the only earnings trade that I placed this week. On Wednesday morning I closed the trade for a small profit of $24.50 (9.57% return on capital) after commissions.

Thursday, with the increase in implied volatility, I sold another /CL Sept 40/38.5 vertical put spread for $.08 ($80 credit received). I now have two of these spreads in the portfolio and they both expire on Monday afternoon.

On Friday, as implied volatility continued to expand in crude oil, I sold a /CL Sept 45 call for $.05 ($50 credit received). This required no additional capital and the option also expires on Monday. I also sold a /CL Nov 63/25 strangle for $.10 ($100 credit received). I had this trade working for two days before I was able to get filled.


Plan For Next Week

This coming week I plan to pull most of my positions off. Both of the $FXE iron butterflies expire next week as does the inverted strangle in Pandora ($P). The Pandora position will result in a loss, perhaps as much as $250. As mentioned earlier, three /CL positions will also expire on Monday. At that point, I will be left with an October and November positions in /CL.

The portfolio is up 41.64% for the year versus 1.59% for the S&P 500 (see Trading Results).  The portfolio is currently about 50% in cash.

Have a great weekend!

  • Jonathan

    Have a nice vacation.