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I was impressed with yesterday's strong bounce off of support and am also impressed with today's move right back down to those support levels. The markets opened up this morning and basically trended downward all day. Both the RUT and the SPX closed at or just above their support levels. RUT closed at $601 and SPX closed at $1080. Today's candlestick patterns are the classic bearish engulfing pattern or what is known as an outside day in the bar chart world. So after the market looked pretty solid yesterday after strongly bouncing off support, now it has driven strongly right back down to support. The key to watch for on Monday is definite break of these support levels.

My Nov iron condor is still in good shape with a P/L of +$2,600, delta = +$12 and theta = +$69. Hopefully, the consolidation of the past several sessions will continue and we can just sit and watch the time decay. But today's strong down move certainly has my attention.

The markets opened in negative territory this morning and momentarily looked as though yesterday's shooting star candlestick was indeed an indicator of a trend reversal. But the indexes dropped, hit support, and started a steady climb upward that accelerated for the last two hours of trading to end the day with all of the stock indexes up across the board. RUT ran up $8 to close at $613 while the SPX closed at $1093, an increase of about $12.

My Nov iron condor on RUT now stands at a P/L of +$2,460, position delta of -$8 and position theta of +$84. My put spreads are now about two standard deviations OTM and the call spreads are about 1.5 standard deviations OTM. The iron condor spread is my "bread and butter" trade and my trading record now stands as:

June: +$4,600 or 29%

July: +$1,400 or 10%

August: -$810 or -5%

September: +$1,630 or 6%

October: +$715 or 6%

November: +$2,460 or 15% (still open)

Given the severe market volatility of the past several months, I am particularly pleased with this track record. Iron condors are easy trades during slowly trending or sideways markets, but 2008 and 2009 have been extremely challenging for all delta neutral traders. If you can successfully trade iron condors in this environment, I would dare say you could trade them anytime.



 

The markets traded up and then basically sideways throughout the day and then did an abrupt about face with about one hour left in trading. It is hard to say what triggered the sell-off. Some suggested it was the downgrade of Wells Fargo that started all of the financials trading downward; some suggested the dollar hitting new lows was starting to worry some traders. The RUT dropped $8 to close at $605, just above support at $600. Similarly, the SPX dropped about $10 to close at $1081, just above its support at about $1080. Both of the SPX and RUT charts displayed a shooting star candlestick pattern today, often suggesting an imminent reversal of an up trend. In this case, we would want to see the SPX and RUT solidly break their support levels tomorrow to confirm that reversal.

My Nov iron condor is almost exactly delta neutral with a P/L of +$1,780, delta = +$2, and theta = +$108. Watch the market tomorrow morning carefully. I trust you have your contingent stop orders all in place??

The markets were in negative territory almost all day. Many expected the good earnings announcements, led by Apple, to lead the market higher, but that didn't prove to be true. My view is that the earnings announcements have generally been considered as good or exceeding expectations based on profit growth rather than revenue growth (Apple was a notable exception). Companies have aggressively laid off workers and cut costs, resulting in gains in profitability, but those gains are temporary. When you couple this realization with some profit taking after an exceptional run upward for the past few months, some sideways consolidation is the best we can expect. But this presents a much more favorable market for our delta neutral trades.

RUT closed down about $9 to $613 while the SPX dropped $7 to $1091. The RUT is struggling to break through $625 while the SPX can't break $1100. My Nov RUT iron condor (20 contracts of the 520/530 puts and 680/690 calls) stands at a P/L of +$2,220, position delta = -$15 and theta = +$89. Perhaps Nov will be a nice boring month for us condor traders - it's about time! However, I still think there is a good chance of some unexpected economic data scaring this market, so keep your contingent stop loss order in place to close your put spreads in case of a sudden drop.

The bull market is still intact, in spite of all of us doubting Thomases. The Russell 2000 Index (RUT) closed up about $6 to $622 while the S&P500 Index (SPX) closed up about $10 at $1098. RUT had a strong run upward this morning, but it stalled at the resistance level set earlier this year at $625. RUT has been trading just below $625 for four sessions now; it is looking for some news sufficient to break through $625. SPX broke through its resistance a few days ago and now appears to be struggling with the $1100 mark; for three sessions, it has bounced off of that level; today it broke above by a thin dime just for a couple of minutes.

As I am writing this blog, AAPL has not yet announced its earnings, but the weak price moves on AAPL Friday and then again this morning caused me some concern so I closed my AAPL double calendar for a loss of $850. My Nov iron condor stands at a P/L of +$1900, delta = -$36 and theta = +95. I will begin to look for opportunities to position my Dec condors within the next week to ten days.

BAC's and GE's earnings announcements seemed to set a sour mood for the markets today, with losses through most of the day, although some of the losses were erased in afternoon trading. The SPX closed down at $1088 and RUT closed down about $7 at $616. RUT closed at an intermediate support level at about $615. If market weakness continues Monday, the next support level is at around $600. The settlement value for RUT has not yet been posted, but RUT traded in the range of $612 to $619 in the first hour, so that is the ballpark for the October settlement value.

All of the options expired worthless in my RUT Oct 540/550 and 660/670 iron condor for a net gain of $715, or 6%.

The RUT Nov 520/530 and 680/690 iron condor stands at a P/L of +$1,960, delta = -$22, and theta = +83.

I closed my GOOG Oct/Nov $530 calendar this morning during the first few minutes of trading for $11.10, for a gain of $1,090 or 11%. The extreme IV of the Oct $530 calls disappeared instantaneously, but the IV decreased more slowly in the Nov calls, enabling my profitable exit. Actually, I was surprised at how much IV bled out of the Nov calls during the day; they went from about 35% to 23% . In contrast, the Oct $530 calls were at 99% yesterday. I didn't expect the IV of the Nov calls to be so pumped up for an earnings announcement in October.

The AAPL Nov/Jan 180/200 double calendar is essentially unchanged at a P/L of -$200, delta = +$48 and theta = +$85. However, watching the significant IV decrease in GOOG's Nov calls has me concerned about this trade. Weakness in AAPL's price today is also concerning. I may close this trade Monday if AAPL continues to look weak.

Trading was choppy and generally negative today; late trading this afternoon erased much of the losses. RUT closed essentially unchanged at $623 and the SPX edged up to $1097. Today was the last day to trade the Oct RUT index options, but my Oct condor spreads remain > 2 standard deviations OTM so I allowed those positions to remain open into expiration. The Oct iron condor position will close at a $715 gain or a 6% gain on capital at risk. My Aug and Oct condors are excellent examples of the feasibility of using iron condors for monthly income generation. My Aug position lost $810 and the Oct position gained only $715 but the lesson is risk management. If you can salvage a small loss or even a small gain in the months where the market trends strongly against you, then this trading strategy can work for you.

My Nov iron condor stands at a P/L of +$1,700, position delta = -$29, and position theta = +$81.

I dabbled in a couple of speculative earnings announcement trades today - I normally emphasize conservative options trading strategies, but a little bit of speculation is OK (typically 5-10% or less of your portfolio). AAPL's earnings will be announced Monday and I established a Nov/Jan 180/200 double calendar today for $8,750 (10 contracts). Due to the earnings announcement, IV of the Nov AAPL options is elevated. I am predicting that IV of the Nov options will decrease rapidly early next week while the IV of the Jan options should remain about the same. This should give this position a nice head start. Of course, I also need AAPL to not trade up or down too far. The breakevens of this trade are at $174 and $209.

The other speculative trade was on GOOG's earnings announcement after the market closed today. I put on 10 contracts of an ATM Oct/Nov $530 calendar for $10,010 with breakevens of $504 and $560. GOOG is currently trading in after hours markets at about $540 so this trade appears to be working out just fine. Similar to the AAPL trade, this position benefits from the collapsing IV in the Oct call after the announcement. However, it is also predicated on GOOG staying within $504 and $560.

The markets were pretty strong today, breaking several resistance levels. The Dow closed above $10,000 for the first time in over a year. I don't normally follow the Dow simply because it is a very narrow measure of the market with only 30 stocks. I believe the S&P 500 is a better overall measure of the market's action. SPX closed at $1092, solidly breaking through the previous high for this year of $1080, set on Sept. 23. RUT closed at $624, just shy of its high for the year of $625. It seems to me that these gains are too much, too soon, given the overall weakness of this economy. So I have tightened up the protective stop loss orders on all of my positions. A series of poor earnings reports from some of the big players scheduled this week could start that run for the exits. GOOG, IBM, and GS report tomorrow evening; GE and BAC report Friday. But, for now, one must respect that we are playing a bullish market trend and trade accordingly.

My Oct RUT iron condor is almost done with a P/L of +$670, delta = +$3, and theta = +$143. If tomorrow brings an exceptionally strong up day, I will buy back the 660 calls before the close. Today's run upward brought those calls just to the edge of two standard deviations OTM. The Nov RUT iron condor sits at a P/L of +$800, with a position delta of -$54 and theta = +$107.  In the meantime, earnings season is in full swing.

The market traded largely sideways today with small losses at the end of the day. RUT closed at $612 and SPX closed at $1073. It appears the weakening dollar has run out of its ability to push the market higher. We also have some heavyweight earnings announcements coming this week. Johnson and Johnson's announcement was pretty good on the bottom line, but sales are weak. This underscores the fact that laying off people and other cost cutting measures are only a temporary fix. Announcements from JPM, GS, IBM, GOOG, BAC, and GE later this week will be watched closely. This market is looking for some good news to enable it to break through resistance at the 2009 highs or some bad news that leads to a significant pullback. Of course, failing either, we may just muddle along similar to today's trading - good news for delta neutral traders.

My Oct iron condor on RUT at 540/550 and 660/670 now stands at a P/L of +$535, delta = +$7, and theta = +$246. Both short strikes are 4-5 standard deviations OTM. My Nov RUT iron condor at 520/530 and 680/690 stands at a P/L of +$1,220, delta = -$13, and theta = +$93. Condor traders either are sitting around bored and watching the time decay build or anxiously adjusting positions as the market moves against them. There is a lot to be said for boredom. One warning: sometimes boredom leads to seeking out new trades or moving one's spreads in closer to the money. Don't. Trade your system.

The market traded in positive territory most of the day but sold off in the last two hours. It appears to be a classic case of bouncing off of resistance, i.e., the highs for the year set a few weeks ago. RUT closed at $614 while SPX edged out a small gain to hold $1076. The high for the year in SPX was $1080 and today's intraday high before the sell-off was $1079. So the market will be looking for news or economic data of sufficient strength to push it through those levels. We are in the midst of earnings reports, so one or more of those may spark some enthusiasm, but I doubt it. The FOMC minutes will be released Wednesday and may spark a move. We may just wander sideways for a while.

My Oct condor is still within my two standard deviation rule, so I am continuing to hold those positions; the P/L stands at $460, delta = +$3 and theta = +$224. My Nov condor is also in a good position with P/L = +960, delta = -$26 and theta = +$96.

If you are thinking of entering a RUT Nov iron condor now with 38 days to expiration, I would consider the 680/690 call spreads and the 520/530 put spreads. Both of these positions are well outside of one standard deviation and the deltas of the short strikes are about 9-10. But I would try to get a minimum of $0.70; failing that, I would look at the next set of strikes closer in at 530/540 and 670/680; here the short strike deltas are about 12-13 and you are still outside of  the one standard deviation marks at $561 and $667. But remember to set your contingency stop loss orders. Be disciplined.