Since most of last week’s activity entailed closing out our January trades, and our February portfolio gamma is still fairly low, the Weekly Portfolio Update took a back seat to managing our trades. Now that the smoke has cleared, we can take a breath and assess our current status, starting with the January results:
- SPY January/February Calendar Spread #1 (124 calls) – We closed this position the week before last for a loss of 19.39% on capital risked.
- SPY January/February Calendar Spread #2 (127 calls) – This position more than made up for the above loss with a 25.23% gain.
- SPY January/February Calendar Spread #3 (129 puts) – We added a marginal gain last week by closing our third position at a return of 2.14 of capital risked.
- SPY January/February Calendar Spread Hedge (130 puts) – Our late-cycle hedge trade not only protected our gains, but it generated a nice return (21.90%) in our strategy target profit range.
Our average return per trade was 7.47%, over an average duration of about 16 days. Because we took out a partial position on the 130 calls, the January Model Portfolio return was a slightly more modest 6.1%. That’s still more than 100% annualized—not accounting for the cost of commissions, of course.
This was the status of our open February positions as of 12:15pm est:
- SPY February/March Double-Calendar #1 (123/128) – Last week’s strong rally and plunge in implied volatility have this position showing a nearly 12% paper loss on total capital at risk. It carries a base-position delta of about –22, or –5.4% of capital at risk.
- SPY February/March Double-Calendar #2 (129/132) – This position is offsetting much of the above delta bias with a base-position delta of about +12, or +2.9% of capital at risk. Its P/L is virtually breakeven.
Our unrealized Model Portfolio return is approximately –6.2%, but we’re in good shape with respect to gamma and delta. Our current risk-management price projections are approximately SPY $124.80 and SPY $130.05. The portfolio risk profile is shown below:
Despite repeated rally attempts this morning, breadth remains bearish—so for the moment, it looks like we’ll be staying put for today. Our Supplemental Trades portfolio, on the other hand, may trigger another entry this afternoon.
Our XLE February/March Double-Calendar (68/71) is showing a manageable paper loss (about 4% of capital at risk), but the beta-weighted delta per dollar at risk is above our adjustment threshold. If there’s no sign of a reversal by about 1:30 (Eastern), with enough momentum to bring the share price back under about $70.50, we’ll add a position above the market. Here’s a look at our Supplemental Trades risk profile: