Weekend Portfolio Analysis (December 26, 2015)

Santa-claus-rallySanta Claus delivered good news to the markets this week as the S&P 500 rallied back into positive territory for 2015. However, the SPX remains range bound above support at 1995 and below resistance at 2077-2092. A breach of 1990 would suggest a decline to support at 1937-1963. A break above resistance, and especially over 2115, would shift the bias to bullish. Due to the Christmas holidays, trading was abbreviated this week and volume was light. Volatility was also markedly lower this week dropping 24%. The VIX traded on Thursday as low as 14.45 before closing for the week at 15.74. The SPX opened on Monday at 2010.27 and closed Thursday afternoon at 2060.99, up 60.72 or 2.52%.


The big story continues to be crude oil and this week was full of excitement for /CL traders with West Texas Intermediate dropping to $35.35 on Monday before beginning a significant rally for the rest of the week boosted by a large drop in crude inventories. On Wednesday, the U.S. Energy Information Administration (EIA) reported that crude inventories fell by a surprising 5.9 million barrels in the week ended August 18th. Analysts had forecast a rise of 600,000 barrels, while the American Petroleum Institute, an industry group, had said late Tuesday that inventories had dropped by 3.6 million barrels. As a result, crude oil has, at least for now, found some support snapping a three-week losing streak and posting the largest weekly percentage gain since the week ended October 9th. /CL futures opened the week at $35.90 per barrel and closed Thursday at $38.12 per barrel, up $2.22 or 6.18%.


Trade Activity This Week

With the holidays approaching, I wanted to take as much risk off the table as possible. On Monday, I closed two positions for essentially a scratch. First, I bought back my short /ES Jan4 1650 put that I had sold back on December 8th. After commissions, I net a minimal $4.68 profit (or 1% return on capital). I also closed the two EWZ Jan 26/19 strangles that I had sold on November 30th. After commissions, my profit was exactly $0.00.

On Wednesday, as the market rallied, I had an opportunity to close the /ES Mar 1700 put for a decent $107.18 profit (7.7% return on capital) after commissions. This was not quite the target profit I was hoping for, but considering that I had been in the trade for less than four weeks, I was happy take to the profit and reduce risk.

Plan For Next Week

I plan to sit on my hands and wait for the next good trading opportunity. I have just a few positions in the portfolio right now. The two short /CL puts are starting to gain ground as volatility has decreased in /CL and prices have recovered slightly. I still have the long SPY Jan 185 put that I purchased for insurance. It is nearly worthless at the moment and I will continue to hold it in case the rally once again fails. Finally, I am still holding the YUM covered call position for the foreseeable future.

The portfolio is up 24.76% for the year versus 2.52% for the S&P 500 (see Trading Results). The portfolio is currently 45% in cash.

  • Sitting on your hands to wait for the next opportunity is a wise move. I find that there will always be at least a few good ones each month. Waiting for a high probability trade has always been more profitable for me than to take a random trade because I feel I need to be in a trade.

  • Tom Madine

    Thanks for the updates, Aram, and congratulations on an excellent year! Looking forward to 2016.