Monthly Portfolio Analysis (January 30, 2016)

Faithful blog readers may be wondering why I posted so little this month. Many readers may know that I am also a commercial pilot. I recently was offered the opportunity to assist our local community college in establishing an FAA-approved Part 141 flight school. This has been a monumental task and has commanded virtually all of my free time. As a result, I have had little time to research trades and even less time to write about what trades I have made. I have managed to keep the Portfolio and Trade Results pages updated in nearly real-time. I apologize to my readers for the inability to post more actively. Once things settle down a bit, I hope to get back to weekly posts.

Market Conditions

The market certainly started off 2016 with a blow, but appears to be stabilizing somewhat. Even though we have seen wide swings in the S&P 500, this week did end on a huge positive note with the SPX up 46.88 points on Friday. Market activity this week was driven both by earnings and the central banks. The Federal Reserve released its January statement on Wednesday, leaving the door open to the potential of four rate hikes taking place before the end of 2016. Meanwhile, the Bank of Japan took a step in the opposite direction by announcing the introduction of negative interest rates. The SPX opened Monday at 1,906.28 and closed Friday at the high of the week at 1,940.24, up 33.96 or 1.78% for the week.


The chart show strong support at the 1820 level. Despite excursions to these levels twice in 2014 (April and October) as well as earlier in January of this year, the declines have halted at that level. If we are to see a breach of the 1820 level, that would be a strong indication that we are headed into bear market territory.

Crude oil prices collapsed to their lowest levels in 13 years earlier this month, but now be appearing to form a base.  Since its January 20th low, prices have rallied with crude gaining nearly 25% during that span. Speculation on increasing economic stimulus, and cooperation on output cuts between Russia and OPEC have repeatedly spurred prices higher this past week, although much of that appears to be unfounded. The Energy Information Agency (EIA) released its closely-watched Weekly Petroleum Status Report on Wednesday, which showed an increase to U.S. crude inventories of 8.4 million barrels (versus analyst estimates of a build of 3.3 million barrels). WTI crude opened on Monday at $32.05 per barrel and closed Friday at $33.74, up 1.69 or 5.27%.


Trade Activity This Month

There are too many trades for the month of January to go through each of them in detail. However, I will summarize the activity below.

Most of my trading activity has revolved around crude oil. With the continued high volatility, many opportunities exist in crude. I currently have some laddered straddles in the United States Oil Fund (USO). On January 7th, I sold the Feb 10 straddle for $1.41. On January 11th, I added to the position by selling the Feb 9 straddle for $1.44. Finally, on January 25th, I added another – the March 9 straddle for $1.66. All of these positions are currently showing small profits.

On January 8th, I sold a /CL Apr 60/20 strangle for 0.14 ($140 credit received). On January 21st, I closed the 60 call for a $42.88 profit after commissions and sold the 46 call for 0.20 (additional $200 credit received). I now have the Apr 46/20 strangle with 46 days to expiration and an 88% probability of profit.

On January 11th, I closed the /CL Mar 30 put that I had sold back in mid-November. I took a large loss on this ($1,247.12), partially because I really was not actively monitoring my positions. In hindsight, I could have held the position and taken a much smaller loss. This is the major contributing factor to overall loss to the portfolio for the month of January.

On January 28th, I sold a /CL May 35.5 straddle for 7.45 ($7,450 credit received). This position is currently profitable. On the same day, I also sold an XOP Mar 34/21 strangle for .73 ($73 credit received).

As you can see, lots of trades in the oil-related underlyings (CL, USO, XOP).

Earlier in January, I was finally able to exit my YUM Brands (YUM) earnings trade profitably. It took about 3 months to turn a $700 loss on an earnings trade that had gone terribly wrong into a profitable trade. I am currently working on a post specifically about this trade and all of the adjustments, so I will spare you the details here.

I also entered a bond trade – specifically, I sold the /ZB Apr 165/152 strangle at 1″21 ($1,328.125 credit received). I think the Fed is going to leave interest rates alone for a while and that was the premise for this trade.

As earnings season has wound up, I made a couple of small earnings trades this past week. I sold the AAPL Jan5 106/108/94/92 iron condor and exited with a small $18 profit after commissions. The commissions ate of $12 of the profit, unfortunately. Also, I sold two contracts of WDC Jan5 puts for 0.20 and let them expire worthless yesterday for a $37.00 profit after commissions.

Plan For Next Week

I will be monitoring my crude oil positions very carefully and looking for opportunities to exit those trades. I expect February to be a much more profitable month than January.

The portfolio is down 12.68% for the year versus down 4.81% for the S&P 500 (see Trading Results).   The portfolio is currently 70% in cash.

  • Thanks for the update Aram. It is good to see your weekly commentary again. Your writing is as smooth as butter and a pleasure to read. Thanks for letting us know how you are doing with your trades. I know how difficult it can be to write these weekly commentaries due to the amount of time that you have to invest.