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Papandreou's announcement that he would seek a public referendum on the EU debt bailout plan sent markets tumbling both in Europe and here. Markets recovered somewhat as the day wore on. There appear to be two schools of thought: 1) Greek voters turn the rescue plan down and a global meltdown of banking follows, or 2) The EU tosses Greece out of the EU and Greece defaults and the markets have already priced that in. I am inclined toward the latter opinion, but I am certainly not a global banking expert. SPX lost $35 to close at $1218, while RUT lost $27 to close at $714. The VIX popped up as high as 38% before settling back to 35%, for a five point jump from yesterday's close.
The area of about $1220 to $1230 is a congested support level first established back in early September after the August crash. The SPX struggled in that area for several days recently before breaking out to the upside. So far, that area of support is holding, but tomorrow may be a different day.
The ISM manufacturing index came out for October at 50.8, essentially flat from the previous month's 51.6. But the markets were completely focused on Europe and secondarily on the collapse of MF Global.
I removed the hedge on my Nov condor this morning. The spike upward in IV has hurt the P/L on both of the condor positions, but the position Greeks are actually pretty good. The Nov condor stands at a P/L of -$4,100 for 20 contracts with delta = +$8 and theta = +$244. The Nov 660/670 put spreads remain about one standard deviation OTM. The Dec condor stands at P/L = -$1020 with delta = -$19 and theta = +$95.
All eyes on Europe... again.
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Lingering concerns about Europe and BF Global's bankruptcy appeared to worry traders today. But it could have been simply a case of many institutional traders selling to capture profits for their month-end numbers. In any case, SPX shed $32 to close at $1253 and RUT closed at $741, down $20. The VIX bounced back up to 30%, reflecting some fears about a possible turn back down to test previous lows. Trading volume fell off a bit, with 3.3 billion shares of the S&P 500 trading. Trading volume rose 4% on the NYSE and fell 3% on NASDAQ. Today's price action took the SPX back well below its 200 dma; this is a significant level because many institutions trigger their trading off the 50 and 200 dma.
I removed the hedge on my Dec condor this morning, but left the Nov hedge in place. Both positions remain underwater, but the Greeks of both positions are in good shape. The November position delta is +$18 and position theta = +$200. Delta and theta for the Dec position are -$39 and +$89, respectively.
I have to run; goblins are at the door!
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The late Harry Caray of Cubs baseball fame here in Chicago made "Holy Cow" one of his trademarks. And it certainly would apply to today's market. A deal was reported out of Europe this morning to address the European sovereign debt issues and the market went ballistic. SPX gained $43 to close at $1285 while RUT closed up $38 at $765. SPX sliced through its 200 dma at $1274. The only sign of weakness was giving back about $10 in the last few minutes of trading. The VIX gapped down at the open and closed at 25.5%, the lowest level since early August when the market collapsed. Trading volume surged with over 4.9 billion shares of the S&P 500 trading. Trading volume was up 27% on the NYSE and was up 32% on NASDAQ.
Third quarter GDP grew at 2.5%, a nice increase over the second quarter's anemic 1.3% growth. That helped calm some recession fears. Unemployment remains stubornly high with 402k new unemployment claims, flat from last week. Continuing unemployment claims dropped by 96k to 3.6 million.
The market's surge forced me to re-establish my hedges on the November iron condor (I wish I had left the hedges in place from Monday); I also rolled the put spreads up to 660/670. This adjusted our Greeks to an acceptable range with delta = -$19 and theta = +$96, but we remain underwater.
Market analysts have been almost unanimously surprised with the extreme strength of today's rally with several analysts predicting a pull back in coming days. But getting in front of this freight train could be dangerous.
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Trading was very sluggish today with lower volume and virtually no direction. SPX closed at $1285, up less than a dollar. RUT closed down $4 at $761. There wasn't much economic news to chew on today. The University of Michigan consumer sentiment survey came in at 60.9, up a bit from the previous reading of 57.5. Trading volume was markedly down across the board with 3.4 billion shares of the S&P 500 stocks; trading was down 30% on the NYSE and down 35% on NASDAQ. The VIX actually opened up higher this morning at 26% but moved downward through the day to close at 24.5%. All signs appear to point to this rally having sustaining power, but the proof will come next week. We will have plenty of potentially market moving news events: the FOMC meeting and announcement, Bernanke's news conference, the G-20 Summit, and the non-farm payrolls report.
I rolled the 780/790 call spreads in my Nov RUT condor to 790/800; this position remains underwater with a P/L of - $3,590 with delta = -$27 and theta = +$119. My Dec condor at 560/570 and 830/840 is hedged and stands at a P/L of -$1400 with delta = -$11 and theta = +$50.
Have a great weekend. Be sure to take time to smell the roses.
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Traders were focused on the European Union Summit today, and the markets gyrated back and forth as a result. No clear plans were forthcoming, so traders took varying positions. The markets opened positively but then sold off. But buying resumed in the afternoon and the markets closed with modest gains. SPX gained $13 to close at $1242. RUT closed at $727, up $14. Trading volume was up with 3.7 billion shares of the S&P 500 trading (50 dma at 3.6B). Trading was up 9% on the NYSE and was up 20% on NASDAQ.
New home sales increased 17k to 313k for September. But durable goods orders dropped 0.8% in September, a larger loss than the previous month's 0.1% decline.
My Nov iron condor on RUT stands at P/L of -$340 with delta = -$87 and theta = +$192. As it becomes more clear that a quick fix isn't coming out of Europe, will traders turn their attention elsewhere, or will we continue to "muddle along"?
