Friday's price action suggested that we might have found the bottom, but today's market convinced us of the foolishness of that thinking. SPX plunged $80 to close at $1119; Russell (RUT) gave up 8% of its value in one day: down $64 to $651. We used to think of market corrections to be of the order of 8%; we lost that much just today. The markets paused in the afternoon as President Obama spoke, but then the market averages turned over and headed lower, closing at the lows of the day. Obama still doesn't get it; he continues to talk of tax increases and blames those stubborn Republicans for everything. After traders heard that, they knew nothing is going to change in Washington any time soon and they resumed the panic selling. Trading volume was huge with 7.3 billion shares of the S&P 500 changing hands. Volume was up 10% on the NYSE and up 6% on NASDAQ. In fact, trading volume has consistently increased every day since last Monday. Volatility is also on the rise; the VIX closed at 48% today. VIX has doubled since August 1.

There were no economic data reports today, but even if there had been, they would have been overshadowed by the Standard and Poors downgrade of the U.S. debt. S&P officially announced its downgrade Friday after the market closed. They previewed their rating rationale with the White House, whose analysts discovered a two trillion dollar mistake in their calculations. But that didn't phase S&P; they corrected their numbers and issued the downgrade as planned. It is difficult to imagine an organization contemplating such an historic move as removing our AAA bond rating, and the analysis and calculations move through the organization with a huge error in the calculations. And when the error was discovered and acknowledged, they move forward anyway - sounds like my favorite Dilbert cartoon. And don't forget: these are the people who told you that buying those mortgage backed securities were perfectly safe.

As you might expect, I have been scrambling to protect my August and September iron condor positions. I have hedged both positions with long puts and then closed my put spreads and rolled them down. Then I opened new call spreads to effectively re-position my condors. Now the Aug position consists of the 610/620 put spreads and the 750/760 call spreads with position delta = -$47 and theta = +$136. The Sept position consists of the 610/620 put spreads and the 780/790 call spreads with position delta = -$58 and theta = +$175. Both positions are in red ink for now, but have the potential to still make a reasonable profit before expiration. In fact, the Sept position has the potential to make as much as $6k on 20 contracts simply because the put hedges have appreciated so much the last few days.

The FOMC meets tomorrow, so all eyes and ears will be tuned to whatever comes out of that meeting. In the meantime, either hedge your positions or sit safely on the sideline. It's crazy out there.