Profitable IWM And SPY Trade Closures, Created SPY Iron Butterfly

The market kept it's mojo working today rallying across the board on extremely light volume. Moves like this are to be expected during Holiday trading weeks. Volume will pick up after the Forth but the market won't be back to "normal" until next week when traders are back from their vacations.

 

It was a busy half day of trading day at BookingAlpha today! We executed the following:

 

Monthly Trading Service:

1.) Closed SPY Bull Put Credit Spread for +6.45% in 8 days.

2.) Closed IWM Bull Put Credit Spread for +6.94% in 5 days (these puts were opened as an Iron Condor, the calls remain open).

These profitable closures brings the Monthly Service portfolio to 80% cash with one IWM Bear Call Spread still open. More trades are slated to be opened Thursday & Friday to take advantage of the recent ramp higher in the market.

 

Weekly Trading Service:

1.) Opened SPY Bull Put Credit Spread to create an Iron Butterfly with an existing SPY Bear Call Credit Spread.

Creating this Iron Butterfly allows us to bring in some put premium while we wait for better circumstances for our SPY Bear Call Spread. The calls will most likely require another roll to next week in which case, we will leave the puts opened today to expire for profit and roll the calls out again. Alternatively, if the market pulls back Thursday or Friday, as it has the potential of doing after such a run and with the NFP Report, etc to be released which may spook traders, we may have the option to close the trade completely or leg out of each side. The market's behavior will dictate our moves but the most important thing is that we bought ourselves time and brought in some premium while doing so.

 

Regarding the markets, things have gotten quite frothy. There is a lot of expectation/anticipation/jubilation about QE3 being potentially back on the table. The S&P has tacked on +44 points in 3 days with seriously declining volume; which is expected during Holiday trading but nonetheless.... That +44 point move equates to +3.3% with no digestion or retracement whatsoever. Many indicators are extremely overbought. most of the indices are at or above their upper Bollinger Bands (check out IWM for instance!) and have very large gaps between their current prices and their 5, 10 and 13 day moving averages. Additionally, the VIX continues to plummet closing in the mid16's and VXX closing with a 13 handle today. Historically, buying the VIX around the 15-18 level to get long volatility is a wise move.

 

All things considered, the further this market rockets in a short period of time the better a short opportunity it presents. This move is much unlike the first 6 months of this year when it was a gradual grind higher. This is a parabolic move that sets up a great market short / volatility long situation.

 

The market may be able to stay strong into next week when earnings begin but our analysis indicates it wont last through July. Pre-earnings warnings are at their highest pace in years and earnings will be lukewarm overall. With markets nearing their highs (S&P 1400 area) there isn't much room left to run. Let the QE rally that is being distorted by Holiday trading run and start scaling into your shorts.

 

Furthermore, do not bail on short positions that are in trouble here. This is not the time to panic and dump your positions. This is not the first 6 months of the year when volatility was contracting from highs and markets were at lows (VIX in the 40's and S&P down 15%). Stay the course and don't get spooked. Waiting and being patient are the hardest things to do but typically the best approach in this markets like this.

 

Thanks to you all and have a great 4th!!!