The daily Market Outlook uses a combination of comments and videos to discuss market activity from the perspective of an options income trader. We discuss a combination of technical analysis and our open trades to make trading and adjustment decisions.
Written comments will be posted on trading days and some days will also make use of video. The videos are instructional and help explain the decision making process behind managing options trades. The Market Outlook will generally be available by 7 p.m. EST.
June 20, 2016:
I recently sent an email and the service will not be continuing. The trade page will be updated following the close and you’ll receive trade alerts for the open position. Again, thanks for your support and feel free to contact me with questions. I’m including the email text below for your reference:
First, I’d like to thank you for your interest in the Theta Trend Daily service. I appreciate your support and your interest in the service. Unfortunately, the response to the service has been less than expected, which makes it unrealistic to continue going forward.
As I’m sure you know, time is a resource and it makes sense to allocate our resources where we perceive the greatest opportunity. My initial polling suggested that the service would be more successful than the launch proved. This isn’t a personal thing, the market just isn’t there in a way that it makes sense. I’m including a few notes below that I think should answer your main questions.
We have one open position that was started last week. I will continue to update the written content on the trade page through the duration of the trade and send alerts for that position, but I will not be producing daily video to cover the market or position. I may update the trade page slightly later in the day.
Most of you have not been billed due to the extended trial. For those of you who had a shorter trial and/or were billed, I’ll be refunding your charges.
You may receive an email saying your subscription has been cancelled. That’s totally normal and my way of making sure you’re not accidentally billed.
You should be able to continue to access the content as normal. If not, let me know and I’ll look into the issue.
If you have any questions you’re welcome to get in touch. Thanks again for your support.
June 17, 2016:
Today was a somewhat uneventful day with the market ending slightly in the red down 0.33%. From a bigger picture perspective, the market appears to be balancing or consolidating between 2,035 and 2,110. The close today around 2,070 is roughly in the middle of that range. On a shorter term basis, the market looks slightly weak as it sits below declining 5 and 10 day simple moving averages. The positions are all safe and there hasn’t been much change.
Next week I’m considering adding the SPX Aug 12 1960/2010/2050 Put BWB for under a 1.00 debit. I’ll want to see what happens to the futures on Sunday night and how we trade early in the day Monday. The trade is similar to the August 5 BWB we entered this week both in terms of price and DTE on entry.
June 16, 2016:
The S&P 500 was able to end the day in the green today, but it wasn’t a clean path higher. The market traded lower early in the day and I chose to close the July 15th BWB for around the maximum loss. Shortly after closing that position the market headed sharply higher and we could have remained in the trade. While the move is extremely frustrating, part of trading is taking losses as planned. Had the market continued lower today, we would have been happy to have capped the loss.
In the majority of the BWB trades I’m targeting roughly a 10% risk:reward. For example, if the risk on a fly is $1,000 then I’m looking at a maximum risk and target of around $100. The challenge with the trade we closed today is that the position was adjusted defensively to the upside shortly before the move higher failed and reversed. The longer term trade was adjusted in the same manner and around the same time, but that trade with more DTE was able to handle the whipsaw better.
Going into tomorrow we have no positions that are under pressure. If you are in a similar July 15th fly that was not closed, you may consider letting it run and monitoring the loss around the 10% of risk level.
As far as price goes, the next upside reference is around 2,085 and on the downside we’ll be watching 2,050.
June 15, 2016:
The Fed has come and gone without much change to the S&P 500. SPX ended the day slightly in the red, but above the 2,070 support level we’re watching. The market was unable to get up and above the 2,085 level today. While failure around that level isn’t bullish, it’s not surprising on the first visit to the level. We’ve had quite a few down days in a row and I wouldn’t be surprised to see a pop higher soon even if it’s small and/or short lived.
On the upside, I’ll be watching the 2,085 level. Getting above that creates the opportunity for the market to test the 2,100 level again. On the downside, we need to keep an eye on 2,070. Breaking that level could take the market down towards the 2,050-2,055 area. The 5 and 10 day SMA’s are still declining, which means intraday rallies are more likely to fail.
Volatility was slightly lower on the day today while the VIX:VXV remains slightly elevated. The positions are all safe from a price standpoint and a new trade page was set up to track the position we opened today.
June 14, 2016:
The S&P 500 saw a little late day buying today that trimmed some of the earlier losses. The market traded through and then closed above the 2070 level we’ve been watching on the downside. On the upside, we’ll want to see how the market reacts if/when it gets to 2,085 and 2,100. On the downside, the next major area of potential support is down around 2,050. The shorter term simple moving averages (5 and 10 day) have crossed and are now declining, which is reason for caution. At the same time, the longer term moving averages are still in bullish order and sloping up.
Implied volatility came in slightly today, but the VIX:VXV ratio is still elevated and remains curiously high relative to the percentage pullback we’ve seen. Tomorrow we have a Fed statement in the afternoon and that always has the potential to move the market.
In the video I show you the trade I’m considering for tomorrow morning. It’s the August 19th 1975/2030/2075 SPX Put Butterfly. The trade has around 65 DTE and was trading for 1.70 at the close today. If the market moves significantly overnight, I may take another trade. A more cautious trader might also choose to wait until after the Fed speaks to place an order. My preference in this case is to take advantage of elevated IV and I’ll likely enter a trade prior to the event. More details will show up in your email tomorrow morning.
June 13, 2016:
Volatility is without a doubt the story of the day. Last Friday we saw an initial uptick in implied volatility (as measured by VIX) that continued in a big way today. Since last Wednesday, the S&P 500 is off slightly under 2% (a relatively normal sized move) while the VIX has gone from around 14 to just under 21 today. Additionally, the VIX:VXV ratio is trading at an elevated level and closed well above 0.92.
While I keep an eye on the VIX:VXV ratio as an indicator of potential trouble, it’s not always a great predictor of crashes. That being said, crashes tend to occur when the VIX:VXV ratio is elevated. I am not predicting that a crash will occur, but volatility is making a large move relative to price and that’s reason to keep a closer eye on the market for a while.
From a price standpoint, the market looks relatively healthy. If anything, it looks like it’s making a somewhat controlled pullback after backing away from all time highs. It hasn’t started crashing lower (yet) and seems like it’s still roughly sideways since April. The spike in implied volatility is the piece that doesn’t quite fit.
I’ll be watching futures overnight and tomorrow morning. I’ll send an email prior to the open with a plan if we see a large overnight move. Hopefully it will just be a boring night.
June 10, 2016:
Today we saw some additional weakness in the S&P 500 and I’ll be keeping a close eye on the market going forward. There are some areas of potential support on the downside we’ll need to monitor. The first level is around 2,085-2,090 and falling below that could take the market down to test the 2,070 area. A potential bearish scenario is for the market to find support around 2,085, rally to 2,105-2,010, fail, break 2,085 and then test 2,070. All that being said, the market could certainly find support and move higher.
The pullback put the positions under pressure since we recently added the butterflies for credits. Those trades didn’t have quite enough time to decay before the pullback. At the same time, the heat is under control and the market has a little way to travel before reaching the butterflies.
Have a great weekend!
June 9, 2016:
The S&P 500 opened lower today and was able to find some buyers to end the day slightly red, but close to unchanged. On the shorter term, 65 minute, timeframe, the market put in what may become a higher low around 2,105-2,107. Going forward we’ll want to keep an eye on that level and also the even number 2,100. As long as those levels continue to hold, my bias is for sideways to slightly higher prices.
In the video I mention that if the market was to close the week at this level, it would be the highest weekly close since July 2015. With the market around 1% below the all time high, it’s still very possible to see that level tested. At the same time, there is nothing to say that the market can’t pull back a little bit before pushing higher.
As far as our positions are concerned, there isn’t much to say or do and that’s a good thing.
June 8, 2016:
The S&P 500 continued the slow grind higher today and the short term pattern of higher highs and higher lows continues as the market gets closer to the all time high around 2,134. With the market sitting less than 1% below the all time high, it wouldn’t be surprising to see it test that level in the near future. The Russell 2000 continues to push higher without pause and has made a roughly 10% move in less than a month.
Both of the positions are doing well and there’s not much to say on that front. The beauty of low gamma trades is that most days are pretty uneventful. The next time we’ll think about an upside adjustment is if the market gets above and holds above the all time high around 2,134. Even if the market hit that level (or beyond) tomorrow, there’s no reason for concern.
June 7, 2016:
There wasn’t much change in the market again today and the trades are doing fine. That’s the first take and probably the most obvious.
The main reason for the video tonight is to talk a little bit more about price action. After seeing the S&P 500 push up and above the 2,110 level we’ve been watching, the market ran a bit higher and sold off late in the day today. That type of price action doesn’t suggest a significant amount of conviction, BUT the market is still exhibiting a pattern of higher highs and higher lows on the short term (65 minute) timeframe.
In the video we talk about Volume Weighted Average Price (more on VWAP here). The late day selling we saw today brought the market down to the week to date VWAP, which is an important level from the standpoint of short term sentiment and trend. Spring moves sometimes happen from VWAP as levels are defended or sentiment shifts so it’s just something to keep in mind going into tomorrow.
It isn’t essential to watch the market tick by tick and obsess about every level for our non-directional trades. At the same time, it’s good to have an awareness of what the market is doing and attempt to make sense of price action in the context of our positions.
Our defensive watch levels on the downside remain the same. We’ll want to see 2,100 hold on a small pullback and then 2,085 if the market fails. On the upside, the S&P 500 is still within “spitting distance” of the all time higher and it wouldn’t be surprising if SPX tested that level.
June 6, 2016:
This morning we made adjustments to both the July 15th and August 19th trades. I made those adjustments because SPX has not been showing any signs of weakness and seems like it may push up and above the 2,110 area. Even though the market didn’t take off to the upside today, SPX closed firmly above the even number 2,100 level and ended the day up 0.49%.
In the short term, I’ll be keeping an eye on the 2,100 level in the S&P to make sure it holds. Beyond that, the next reference lower is around 2,085. With SPX above those levels, I’ll maintain my neutral to bullish expectation. Violating either level, and especially 2,085, will be reason to re-assess that expectation.
The Russell 2000 continues to be considerably stronger than the S&P 500 and seems a bit like it’s defying gravity. It’s important to keep in mind that markets can move much further than we think they “should.” Even though we expect markets to revert to the mean, the mean is not static and a rising market will have a rising mean.
June 3, 2016:
**I’ll be traveling this weekend and unable to respond to email. If you get in touch over the weekend, I’ll get back to you sometime on Monday.
This morning there was a negative employment number that sent the market lower, but both the S&P 500 and Russell recovered most of the loss by the end of the day. On the daily timeframe, everything is essentially the same. On the shorter term, 65 minute timeframe, the Russell found support at prior resistance and a rising 5 day simple moving average. The S&P 500 continues to find support around 2,085 and with a rising 5 and 10 day simple moving average the bias is still neutral with the potential for higher prices.
In the video today we discuss two potential adjustments: two for the longer term August BWB and two for the July 15th BWB we opened this week. I’m reluctant to make any adjustments until we see SPX move above the 2,110 level. Failure to move higher could lead to a fast move lower. Ultimately we’re not trying to predict the market. We’re observing activity and making decisions as new information presents itself. For now, we don’t have much new information.
Have a great weekend!
June 2, 2016:
The Russell 2000 continues to move higher in what seems like it could be a short squeeze while the S&P 500 grinds along. SPX is sitting slightly below the April highs around 2110 and has the potential to move through that level. Moving above the 2110 level opens the door to 2120 and the all time high around 2134.
For the July 15th BWB that we opened yesterday, there is nothing to do other than wait. The reality of low gamma, essentially delta neutral trades is that they require little maintenance or concern (most of the time). Right now we just want time to pass without a catastrophic market crash.
The August 19th BWB that was opened around 86 DTE is at a point where I am considering an adjustment and/or adding to the position. In the video we look at two potential adjustments. One is selling the 1975/2025/2060 Butterfly for a 0.45 credit and the other is selling the 2020/2025 vertical spread for a 1.00 credit. Adding the second fly has the effect of reducing our initial debit in the trade, lifting the wing, and increasing size. Selling the vertical also lifts the upper wing and keeps size smaller. Both adjustments shit the T+14 line (T+zero line in 14 days) higher and give the position room to breathe up to about 2165 or 30 points above the all time high.
June 1, 2016:
Today was a relatively uneventful day for SPX, but RUT has really been ripping higher. RUT is now above and holding above the April highs, but SPX has not made it above the April highs. The outlook on SPX remains neutral to slightly bullish, however, with we need to keep the price activity in RUT in mind and realize that the strength could pull the market higher.
The all time high for SPX is nearby at 2,134 (less than 2% higher). Even though SPX is struggling around the 2,100 level, pushing into new highs is a real possibility. We opened the first position for the service today and there’s not much to say about that yet. The video today discusses the two types of BWB’s we’ll be trading as well as some potential adjustments.
May 31, 2016:
The markets (SPX and RUT) ended the day essentially unchanged, but RUT has been a touch stronger than SPX. Today RUT pushed up and above the recent April highs before falling back into the range. If RUT is able to get up and above those levels it may be an indicator that SPX is next.
The video below goes through the potential trades we’re looking at for tomorrow. The trades we’re considering are SPX July 15th and July 22nd BWB’s with the short strike centered around 25 delta. The trade page for that trade is live and emails will be sent prior to trade entry. You can anticipate your first trade alert email to arrive sometime tomorrow morning. Thanks again for your support of Theta Trend Daily!