A few days ago, it seemed all traders were concerned about was the FOMC (a bit of an exaggeration), but now every twitch of the spot oil prices is telegraphed into the stock market. SPX went into free fall this afternoon, dropping $36 to close at $2006. RUT dropped $14 to $1121. Volatility rose again with the VIX closing at 20.4%, up 1.4 points. Trading volume was higher, as one would expect on expiration Friday. Trading volume rose 69% on the NYSE and increased 27% on NASDAQ.
The fear is that falling commodity prices are an indication of global economic weakness. This is in stark contrast to the positive assessment of our economy from the FOMC this week. Is that why the markets rallied so strongly on Wednesday, but then sold off yesterday and today?
RUT continues to trade more weakly than SPX. After this week's see saw in prices, RUT is only 1.6% off of the August flash crash lows. However, SPX would have to drop almost 7% to get back to those lows. RUT's weakness is not a positive signal.
SPX settled at $2029.72. The 2160/2170 call spreads in our December position expired worthless. This resulted in a 8% loss for December, but ends the year for the Flying With The Condor™ service at +40%.
I track the difference between the Thursday close and the settlement price for SPX. The average change this year was $9.60, but August and September were big months with changes over $20. This was the origin of my developing the Two Sigma Rule for closing spreads on the Friday before expiration week. This has proven to be a conservative measure for deciding whether to close spreads early or to allow them to go into expiration to expire worthless.