Weekend Portfolio Analysis (September 10, 2017)

Market Analysis

After closing higher for the past two weeks, U.S. stock markets slipped during the holiday-shortened week. Traders returned from the long weekend to react to news of another North Korea missile launch while anxiety was also heightened by uncertainty surrounding Hurricane Irma with Hurricane Harvey still fresh on traders’ minds. The price tag for Harvey is still being calculated, but the cost of two storms together could be several hundred billion dollars. Property and casualty insurers entered this hurricane season with strong balance sheets after several quiet seasons but will likely be hit with sizable claims in coming quarters. U.Ss economic data is likely to be impacted by the storms for some months to come, making underlying trends more difficult to discern. Of course, this fueled safe-haven assets -like gold and the Japanese yen – to move higher, jumping 1.6% and 2.3%, respectively. The yellow metal settled at a 13-month high while the dollar/yen pair finished at a ten-month low. In addition, the CBOE Volatility Index (VIX) spiked 20.2% to 12.18.

The odds of a third U.S. Federal Reserve rate hike this year declined this week, prompting a drop in the yield on the US 10-year Treasury note to 2.06% from 2.14% a week ago.

The S&P 500 (SPX) opened Tuesday at 2,470.35 and closed Friday at 2,461.43, down 8.92 points, or 0.36%.

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U.S. crude oil stockpiles skyrocketed this week. As analysts expected, refinery runs were down substantially during the week after Hurricane Harvey, leaving crude oil stockpiles to increase significantly. The latest Energy Information Administration (EIA) data recorded an inventory build of 4.6 million barrels for the week ending September 1st following a draw of 5.4 million barrels the previous week. Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil fell by 3 to 756 this week.

Crude oil futures for October delivery opened Tuesday at $47.28 per barrel and closed Friday at $47.56, up $0.28 or 0.59%.

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Trade Activity

We had only two trades this week, one closing trade and one new trade.

/ZS January 1200/860 Strangle
On Tuesday we closed out our remaining soybean strangle for a nice profit. The strangle had originally been sold on July 31st for $8.50. We bought it back this past week for $4.00 which net us a profit of $208.76 or a 41.34% return on capital after commissions in just 36 days.

/CL December 63/38 Strangle
Also on Tuesday, we entered into a new crude oil strangle. The implied volatility is a bit lower than we would ultimately like to see, so we kept our position sizing small at just one contract.

Trade Details:
SELL 1 /CL Dec 63 Call @ 0.09
SELL 1 /CL Dec 38 Put @ 0.09
Credit: 0.18 ($180.00 per contract)
Max Risk: Unlimited (Breakeven Prices: 37.82 / 63.18)
/CLZ7 Current Price : $49.38
Margin Required: $720.00
Days to Expiration: 71
Probability of Profit: 95.21%

Current Portfolio

/6E November 1.27/1.1 Strangle
$275.00 Credit. 54 days to expiration. 1 delta on the puts and 10 deltas on the calls. Currently at 6% of maximum profit. IV Percentile is still elevated at 49% and the euro has continued to rally. However, we have a lot of room on the call side and I think the trade is still in good shape with an 83% probability of profit.

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/ZW October 460/470/405/395 Iron Condor
$575.00 Credit. 12 days to expiration. 4 deltas on the puts and 15 deltas on the calls. Currently at 60% of maximum profit. This trade still looks real good. Ultimately, we are looking for wheat prices to remain in the 440 to 460 range for the next two weeks until expiration to help minimize our losses.

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Our remaining put verticals from the earlier wheat trades result in the combined risk graph that is shown below.

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/ZW November 460/470/405/395 Iron Condor
$506.25.00 Credit. 47 days to expiration. 13 deltas on the puts and 28 deltas on the calls. Currently at 14% of maximum profit.

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Plan For Next Week

We will look for opportunities to enter new positions.

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