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Traders worried again today about the consequences of the elections in France and Greece. The markets opened and traded significantly lower this morning before recovering much of the losses late in the day. SPX traded as low as $1348 before bouncing to close at $1364, down $6. RUT behaved similarly, but recovered almost all of the early losses, closing down $1 at $793. Trading volume spiked upward with 3.0 billion shares of the S&P 500 stocks changing hands. Trading volume was up 20% on the NYSE and was up 24% on NASDAQ. There was no economic news of any consequence, so all of the focus was on the European debt crisis.
The strong recovery after trading so low today was very bullish. It is premature to relax, but in the absence of some new troubling news, it appears the bulls have the edge. The VIX closed at 19% after spiking as high as 21% during the day.
My May RUT iron condor at 720/730 and 910/920 stands at a P/L of +$1,320 with delta = +$37 and theta = +$50. Both spreads remain over two standard deviations OTM. The June RUT iron condor at 690/700 and 880/890 stands at a P/L of +$1,300 with delta = +$2 and theta = +$69. This position is almost perfectly delta neutral at this point. This is a spooky market, so keep your eye on the ball - follow your rules and resist the urge to predict tomorrow's action (if you're trading delta neutral).
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The socialists won in France and the S&P futures were down 22 points last evening when I went to bed - I didn't sleep very well. But somehow, the markets got over their anxiety overnight. SPX opened lower this morning, but recovered and spent most of the afternoon in positive territory. SPX closed flat at $1370 and RUT closed up $2 at $794. Trading volume fell off a bit with 2.6 billion shares of the S&P 500 trading today. Trading on the NYSE was down 6% and volume on NASDAQ was down 10%.
I find it fascinating how the European debt crisis worried the markets sick last fall, but then we got over that and didn't even blink an eye when S&P downgraded Spain's debt by two notches about a week ago. Last evening, it appeared we were back to wringing our hands, but then today, we got over it again. I fundamentally believe the markets are rational, but we can wander all around the barn before we get to the "rational" conclusion. And that is the essence of why directional trading is so difficult. And that is especially true with options, because we have to predict the correct price and the correct time period. The challenge of non-directional trading is handling days like today was setting up to be last evening.
My iron condor on RUT for May stands at a P/L of +$1,060 with delta = +$35 and theta = +$102. The June condor shows a gain of $1,300 with delta = +$11 and theta = +$62. The theta/delta ratios of both positions are very strong. We will apply the Two Sigma Rule to the May position Friday; if we were doing that today, we would leave both spreads open into expiration week - unusual. But Friday is a long ways off.
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ADP announced only 119k new jobs were added to their private payrolls numbers for April, lower than the 170k expected and much lower than March's 201k. This started the market off on a down note this morning. SPX traded as low as $1394 but managed to close at $1402, down $4. RUT dropped to $808 but then rallied to close up $3 at $819. Trading volume remains low with 2.6 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 2% and volume was down 1% on NASDAQ. VIX closed at 16.9%, which isn't too ominous. I would still characterize this market as cautiously bullish.
My May iron condor on RUT stands at a P/L of +$1,220 with delta = +$12 and theta = +$84. The June position stands near break-even with delta = -$51 and theta = +$94.
After the disappointing ADP report today, I expect trading tomorrow will be largely sideways with low volume as traders anticipate Friday's jobs report. But Friday's reaction to the jobs report is anyone's guess. Be careful.
I will start a new coaching course, Options A to Z, on May 21. Register today; it is an exceptional value.
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The jobs report coincided well with ADP's earlier report this week on private payrolls, citing a weak increase in new jobs and a slight decrease in the unemployment rate to 8.1%. But many analysts noted that the labor participation rate has hit historic lows, thus making the unemployment rate look better than it actually is. Investors reacted negatively and this was fueled by concerns about upcoming elections in Europe. Many traders chose to pare down their exposure. SPX dropped $22 to close at $1369 and RUT dropped $15 to close at $792. SPX solidly broke through support at $1390; the next major support level to watch is $1360. The analogous support level for RUT is $785. I suspect today's severe drop won't continue into next week, but we'll see.
Surprisingly, trading volume was only slightly up from the previous session, at 2.7 billion shares of the S&P 500. Trading on the NYSE dropped 3% on the NYSE and rose 4% on NASDAQ.
My iron condor on RUT for May now stands at a P/L of +$680 with delta = +$41 and theta = +$110. The June condor stands at a P/L of +$1140 with delta = +$2 and theta = +$60. The volatility spike today reduced our P/L temporarily, but they are both well positioned.
Have a great weekend.
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Markets opened weakly this morning, but then traded up and hit their intraday highs around noon and gradually traded off until the close. SPX hit a high of $1415, but closed at $1406, up $8. RUT followed the same pattern, but the afternoon losses were not contained; RUT closed at $816, down $1.Volatility dropped a bit with VIX closing down about half a point at 16.6% after hitting intraday lows at 16.0%. RUT's chart looks much more bearish than SPX with a classic shooting star candlestick today and closing right at the $815 support level. By contrast, SPX is well above support at $1390, even after trading off this afternoon.
Trading volume increased modestly with 2.7 billion shares of the S&P 500 stocks trading today. Trading on NYSE rose 2% and volume rose 15% on NASDAQ.
The ISM manufacturing index came in at 54.8 for April, up from March's 53.4. Most analysts were expecting 53.0, so this surprise may have driven the strong trading this morning. This market continues to be characterized by a strong bullish undercurrent that minimizes the negatives and emphasizes the positives. Your overall trading posture should be cautiously bullish.
My iron condor on RUT for May stands at a P/L of +$1,260 with position delta = +$10 and position theta = +$67. The June condor stands at a P/L of +$300 with position delta = -$48 and position theta = +$77. So, in general, these positions are in pretty solid shape.
