April 24, 2017

Overbought/Oversold and Strategy Discussion

Daily Commentary 

Two weeks ago I began following the overbought/oversold levels of 21 new ETFs. As reported at months end I would move all them besides the major market indices (SPY, QQQQ, IWM, and DIA) into the insider’s page page for paid subscribers only. Paid subscribers will now have daily access to these numbers, so check the insider’s page daily for the overbought/oversold numbers.

We will also post how we use these numbers in our trading and this will be archived in the Insider’s page for easy reference.

SPX Iron Condor Strategy

The SPX Iron Condor strategy made 9.3% during the September expiration period and if all goes well we should make around 7.5% during the October expiration period.

The recent market volatility has led to a few losing trades, but with a few adjustments (wider range, mandatory rolling guidelines) we are certain that the strategy will once again be back in the positive. If anything, now is a great time to learn the strategy. Market volatility has declined a bit and the VIX remains above 15. As long as the VIX stays above 15 we should have the opportunity to have an extremely wide range (roughly 200 or more points) which allows for a 6.5% swing up/down over a four week period. As long as the indice finishes/settles the four week period within our wide range we should make anywhere from 5% to 10% a month. The win ratio in the strategy so far is 70% and if all goes well we should be able to increase that percentage to 75% by years end. The downfall so far this year have been the drawdowns.  We have worked diligently to hopefully alleviate the magnitude of the drawdowns. Losses are inevitable, but appropriate risk management techniques should help to ease the drawdowns. Of course in trading nothing is guaranteed, but a move to widen our range to accomodate largeer swings coupled with new rolling guidelines should ceratinly help going forward. Only time will tell. Stay tuned.

ETF Extremes Strategy

I know to many of you I am beginning to sound like a broken record, but this strategy is all about patience. With only two losses in almost a two year period (win ratio – 86%) how can you not be patient. As I stated ealier this week and in the expiration report I expect to see signals pick up as we move into the fourth quarter, the busiest time of the year. Last year the strategy made over 30% during the last three months and we are hoping to do the same again this year.  Again, nothing is guaranteed in trading, so all we can do is go with the probabilities and in the ETF Extremes stratetgy probabilities are always on our side. We patiently wait for a high-probability set-up and pounce. Yes, this leads to less frequent trading, but you must remember each strategy is like a stock, they can and should be diversified to take advantage of different market scenarios.

New SPY Diagonal LEAPS Strategy

We initiated our positions in the strategy on Monday, the beginning of the October expiration period. Our hope is that after we educate you on how this strategy works we can make the strategy live in a month or so. We wanted to try something new on the blog. Introducing a new strategy for the public to learn and follow made sense.  Hopefully, we can educate you on the advantages/disadvantages of the strategy over the next month or so.

The following trades were placed on our test account on Monday September 24th..

Sell to open 2 SPY Oct07 152 calls

Buy to open 2 SPY Dec09 125 calls for $35.70 or $7,140.00

Sell to open 1 SPY Oct07 154 calls

Buy to open 1 SPY Dec09 125 calls for $36.88 or $3,688.00

Sell to open 1 SPY Oct07 151 calls

Buy to open 1 SPY Dec09 130 calls for $31.55 or $3,155.00

Buy to open 1 SPY Dec09 130 calls for $35.35 or $3,535.00

For a total capital outlay of $17,518.00 + $26.55 (commissions) = $17,544.55

Not much to talk about this week. SPY ended the week a few cents higher so the strategies value reamined flat. Typically during the first week of an expiration period, time decay (theta) does not factor in the equation. If SPY continues to remain fairly flat, you will begin to see how time decay (theta) starts to benefit the strategy. Next week, theta should take hold and as we move closer towards October expiration you will see the phenomenon of time decay play out. This is what you want to concentrate on the next four weeks, learning how time decay works and reacts in this strategy. It is the dominate factor and what makes the strategy tick. I will be back with a lengthier discussion next week once we start to see the Greeks, particularly delta, gamma and theta unfold.

Overbought/Oversold for September 28, 2007

S&P (SPY) – 63.3 (neutral)

Russell 2000 (IWM) – 48.2 (neutral)

Dow (DIA) – 76.3 (overbought)

Nasdaq 100 (QQQQ) – 78.3 (very overbought)

Oil Services (OIH) – 53.7 (neutral)

Newly added ETF’s – Will only be available to paid subscribers starting 10/1. Subscribers please check the Insider’s page if you wish to check the numbers on a daily basis.

Core Sector List

Financials (XLF) – 52.8 (neutral)

Energy (XLE) – 54.3 (neutral)

Cons. Cyclicals (XLY) – 50.7 (neutral)

Technology (XLK) – 70.5 (overbought)

Health Care (XLV) – 52.6 (neutral)

Materials (XLB) – 68.7 (neutral)

Industrials (XLI) – 75.1 (overbought)

Cons. Staples (XLP) – 79.9 (overbought)

Telecom (TTH) – 78.9 (overbought)

Utilities (XLU) – 59.7 (neutral)

Gold (GLD) – 82.2 (very overbought)

International

FTSE/XINHUA China 25 (FXI) – 81.9 (very overbought)

Latin America (ILF) – 89.5 (very overbought)

MSCI EMU (EZU) –  84.5 (overbought)

Australia (EWA) – 91.0 (very overbought)

India (INP) – 80.1 (very overbought)

Commodities

Natural Gas (UNG) – 40.4 (neutral)

Agriculture (DBA) – 71.6 (overbought)

Base Metal (DBB) – 70.6 (overbought)

Energy (DBE) – 57.5 (neutral)

Prec Metal (DBP) – 86.3 (overbought)

Okay, the plan is to follow a total of at least 25 major ETF’s is complete. Again, in the near future this list will only be available to subscribers to the newsletter/strategies on the Insiders’ page.  

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 3 stock options strategies in our investment newsletter, the ETF Extremes, SPX Short Iron Condor and SPY Diagonal LEAP.

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com