Weekend Portfolio Analysis (September 24, 2017)

Market Analysis

Markets were relatively unchanged this week, although record highs were recorded again this week. The Federal Reserve announced on Wednesday that it will begin reducing its balance sheet next month. Additionally, the Fed said that it would keep the target range for its federal funds rate at 1.00-1.25%. However,  they did suggest that a hike is likely by the end of the year.

In politics, President Trump made his United Nations debut on Tuesday, taking a hard stance against North Korea. On Thursday, the President signed an executive order that will allow him to take action against anyone who finances and facilitates trade with North Korea.

The S&P 500 (SPX) opened Monday at 2502.51 and closed Friday at 2,502.22, down 0.29 points, or 0.01%.

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The SPX chart still appears bullish with strong support around 2480. Volatility, on the other hand, as measured by the VIX, has continued getting lower and lower, even though there was selling in the market on Thursday and Friday.

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The crude oil market had a quiet week with an uneventful OPEC meeting concluding without any recommendations regarding further production cuts. The recent climb in prices appears to have come to an end, with crude oil prices sitting comfortably at $50 per barrel. The Energy Information Administration (EIA) released its weekly petroleum status report on Wednesday morning showing that U.S. commercial crude inventories increase by 4.6 million barrels last week (2.4 million barrels forecast). The inventory data will continue to reflect post-Hurricane Harvey adjustments for another few weeks as Gulf Coast refiners, terminals and ports continue the process of returning to normal.

The number of rigs drilling for oil in the U.S. fell again this week by 5, dropping to 744, according to oil-field services company Baker Hughes Inc.

Crude oil futures for November delivery opened Monday at $50.39 per barrel and closed Friday at $50.66, up $0.27 or 0.53%.

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Trade Activity

It was a fairly quiet week with two closing trades and one new opening trade.

/ZW October 460/470/405/395 Iron Condor
On Monday we closed the call side of this iron condor buy purchasing it back the call vertical for 0.375. We allowed the put side to expire worthless at the end of the week. After commissions we net a very nice profit of $402.56 or 76.5% return on capital in 31 days. This is a great return, however, it only offsets a portion of our losses in wheat that occurred back in July. Gradually we are making process on recovering all of our losses from this trade.

/ZW October 440/430 Put Vertical
On Wednesday, we closed out this put vertical buy purchasing it back for 0.625. This put vertical was originally part of the /ZW October 490/500/440/430 iron condor that we sold back on August 11th. We had closed out the call side last month for a profit of $85.04. With the profit of $135.04 from the put vertical, we net a total profit on the iron condor of $220.08 or 41.8% return on capital in 40 days. Again, this trade helps offset earlier losses in wheat.

/ZW November 475/485/425/415 Iron Condor
On Thursday, we opened another position in wheat for the November expiration cycle. We sold four contracts of this iron condor, taking in a total credit of $600.00

Trade Details:
SELL 1 /ZW Nov 475 Call @ 3.75
BUY 1 ZW Nov 485 Call @ 2.375
SELL 1 /ZW Nov 425 Put @ 3.50
BUY 1 ZW Nov 415 Put @ 1.875
Credit: 3.00 ($150.00 per contract)
Max Risk: $1400.00 (Breakeven Prices: 422.00 / 478.00)
/ZWZ7 Current Price : $447.25
Margin Required: $500.00
Days to Expiration: 36
Probability of Profit: 60.55%

Current Portfolio

/CL December 63/38 Strangle
$180.00 Credit. 52 days to expiration. 1 delta on the puts and 3 deltas on the calls. Currently at 44% of maximum profit. We will be looking to close this trade out at our target profit level of 50% of maximum profit sometime this week.

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/CL January 66/37 Strangle
$200 Credit. 81 days to expiration. 2 deltas on the puts and 3 deltas on the calls. Currently at 15% of maximum profit. This trade looks good despite entering at very low implied volatility.

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/ZW November 460/470/405/395 Iron Condor
$506.25 Credit. 33 days to expiration. 6 deltas on the puts and 37 deltas on the calls. Currently at 7% of maximum profit. We are still watching this position very carefully.

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Our combined risk profile for both of our wheat iron condors is shown below.

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Plan For Next Week

We are searching for volatility, but it seems to be very elusive for the time being!

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  • Zed

    Great content again, thanks Aram!