Weekend Portfolio Analysis (December 10, 2017)

Market Analysis

Wall Street took traders on a roller coaster ride this week with the major market indexes experiencing their fair share of slumps, losing streaks, rebounds, and record highs. Encouragement over the Republican tax plan lifted most stocks early in the week, but another tech stock sell-off caught investors off guard. However, the tech sector ultimately rebounded, and aided by some upbeat economic and political news later in the week, the S&P 500 ended the week doing… absolutely nothing.

On Friday morning, the nonfarm payrolls report for November revealed an increase of 228,000 jobs, topping estimates of 200,000 jobs. However, wage growth for the same period disappointed. On the political front, Congress was able to pass a two-week spending measure, avoiding a government shutdown, at least for now.

The S&P 500 (SPX) opened Monday at 2657.19 and closed Friday at 2651.50, down 5.69 points, or 0.21%.

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The U.S. Energy Information Administration (EIA) published its weekly crude oil inventory report on Wednesday which indicated that U.S. crude oil inventories fell by 5.6 million barrels last week versus analysts’ estimates for a smaller 2.5 million barrel draw.

The U.S. oil rig count continued its upward crawl for a third consecutive week, rising on Friday by two to 751 amid persistently higher oil prices and a growing confidence voiced by upstream operators now planning 2018 capital budgets, according to Baker Hughes. Analysts have said the relatively high oil prices in recent months most likely prompted continued rig count adds, especially for smaller oil companies that see a chance to drill a few more wells.

Crude oil futures for January delivery opened Monday at $58.32 per barrel and closed Friday at $57.34, down $0.98 or 1.68%. Oil prices are now trading in the same price range as they were at the beginning of the year.

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Trade Activity

It was a relatively quiet week, but we did close out two profitable trades this week.

/NG March 5.25 Call
On Monday I closed out the two natural gas calls that I had sold the previous week. Normally I would like to make 40-50% of maximum profit on a trade like this. However, the profit came in so quickly, I decided to exit early (at 34% of maximum profit) which will give me another opportunity to sell the calls again if natural gas prices spike again in the short term. After commissions, I net a profit of $132.78 or a 20.12% return on capital in just six days!

/ZS March 1200/920 Strangle
On Friday I was able to close out the soybean strangle at the target level of 50% of maximum profit. This trade took thirty days to achieve the target profit level, which is a bit longer than the average 18 day holding period for most of my trades. This was, in part, due to the low level of volatility when the strangle was originally sold. However, it still net a nice profit of $83.76 after commissions which works out to a 16.65% return on capital.

Current Portfolio

/GC March 1450/1150 Strangle
$240.00 Credit. 74 days to expiration. 6 deltas on the puts and 2 deltas on the calls. Currently showing a $10.00 loss due to the significant drop in gold prices this week. Gold dropped to its lowest level since mid-July. However, this trade is still showing more than a 92% probability of profit.

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Plan For Next Week

The portfolio is currently up 25.52% for the year versus up 17.76% for the S&P 500 (see Trading Results). The portfolio is currently 85% in cash. The problem of very low volatility continues to persist throughout the commodities that I like to trade.

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