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Category: Dr. Duke's Blog
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Today was a huge upside day for the markets. The talking heads attributed this rally to the recent better-than-expected earnings announcements. If you read any of those announcements carefully, there isn't much great news. But all of this is only rationalization after the fact - we should only trade what actually happens. RUT smashed through previous resistance to close at $545.85 and the SPX closed at $976.29, well above its old resistance level. As a result, today was a busy day of adjusting my positions - no more waiting for a pullback; time to preserve capital.

I closed the remaining 10 contracts of the 530/540 calls in my Aug iron condor for $6.10, a $2,000 loss. I then opened 10 contracts of the 590/600 calls for $0.90 or $900. I also sold one of the long Sept $530 calls for $33.60 for a $2,400 gain; I kept one as the hedge for my 10 $570/$580 call spreads, that are now being threatened by this surge upward. I then closed all 20 of the $420/$430 put spreads for $0.20, a $1,500 gain and opened 20 contracts of the $480/$490 puts for $0.90 or $1,800. The end result at the close was a position P/L = -$1,855, delta = +$1, and theta = +$130, so we have the theta/delta ratio back in a healthy position. Notice that our hedges have kept us in the game with the opportunity to salvage a profit before the August expiration month is over.

My Aug iron butterfly also required surgery today. I closed the one remaining $520/$570 call spread for $25.00 and the $530/$580 call spread for $21.00; then I sold two $550/$600 call spreads for $11.80. I closed two $440/$490 put spreads for $2.60 and sold two $460/$510 put spreads for $5.20. Thus, my current position consists of two 530/560 call spreads, two 550/600 call spreads, two 450/500 put spreads and two 460/510 put spreads. This position now stands at a P/L of -$2,290, delta = -$80 and theta = +$89. I like the $89 of theta, but the theta/delta ratio is minimally acceptable. The two 530/560 call spreads are weighing us down. If the RUT continues upward or sideways, I will have to roll those spreads upward.