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Obama's jobs plan didn't impress Wall Street, and, if that wasn't bad enough, a resignation in protest at the European Central Bank stoked fears about the European debt crisis. Together, a session dominated by selling was the result. SPX dropped $32 to $1154 and RUT lost $21 to close at $674. Trading volume rose to 3.8 billion shares of the S&P 500, topping the 50 dma at 3.6B. Trading on the NYSE rose by 29% and trading volume on NASDAQ increased 4%. The major indexes closed near their lows for the day and remain firmly lodged in the trading range of the past several weeks.
The spreads of my September condors all passed the two sigma test, so I left them open, but will be watching them closely as we enter expiration week. Both positions are profitable at this point, but the 600/610 put spreads in the one condor are being pressured; they were almost two standard deviations OTM at the close. The Oct condor stands at -$1664 with delta = -$33 and theta = +$97. I removed the call hedges on this position this morning.
Have a nice weekend.
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The markets appeared to be treading water today as they waited on Bernanke's speech this afternoon (nothing new there), and then took some risk off the table in anticipation of the market's reaction tomorrow morning to Obama's speech this evening. SPX closed at $1186, down $13 and RUT lost $15 to close at $695. Trading volume was up a bit from yesterday at 3.3 billion shares of the S&P 500, but remained below the 50 dma. Trading on the NYSE was up 1% while trading volume on NASDAQ rose 10%. Markets tried to rise this morning but just could not hold the gains as traders slowly sold off all afternoon.
It is hard to anticipate what may ultimately move this market one way or the other. Personally, I doubt Obama's speech will be the tipping event. Traders are looking for some free enterprise rhetoric but this administration doesn't trust free markets. We may be stuck in this tenuous trading range for a while.
My two iron condors on RUT stand at a P/L of +$1564, with delta = +$27 and theta = +$133, and a P/L = +$3020 with delta = +$9 and theta = +$69. I will apply my Two Sigma Rule to these positions tomorrow and possibly close some of the spreads. The Oct condor is hedged and stands at a P/L of -$2100 with delta = -$7 and theta = +$61.
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The most obvious aspect of recent markets is the extreme volatility. Today was one more example. SPX opened at $1174, plunged to $1140 and then rallied to make up most of those losses, closing at $1165, down $9 for the day. RUT behaved similarly, closing at $681, down $2 after trading as low as $664. RUT is trading in a broad consolidation range from $650 to $735. It is hard to see a trend at this point. This volatility isn't likely to abate any time soon. The German courts rule tomorrow on whether it is legal for Germany to bail out other European Union countries. On Thursday, we have both Bernanke and Obama speaking. It is very difficult, if not impossible, to predict a market trend in the midst of these news events. And, as we have seen for several weeks, traders continue to worry about the European debt issues and the slow rate of economic recovery here in the states - even though that is all old news. The ISM Services Index came in at 53.3 for August, up slightly from July's 52.7, another indicator of slow, but positive, economic growth.
My Sept iron condor on RUT at 600/610 and 780/790 stands at a P/L of +$684 with delta = +$41 and theta = +$173. My Sept iron condor on RUT at 560/570 and 780/790 stands at a P/L of +$2,600 with delta = +$15 and theta = +$120. The Oct iron condor on RUT at 500/510 and 770/780 stands at a P/L of -$1140 with delta = -$46 and theta = +94. This market is basically trading sideways - great for condor traders. But the extreme volatility taxes our adjustments and our discipline. The July, August and September condors have proven to be good measures of the condor trader's skill level. If you are making money in these markets, you have passed the test.
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The German court ruling that Germany may participate in bailing out European Union members sparked a strong rally around the world. SPX gained $33 to close at $1199. RUT closed at $709, up $29. SPX could not get past $1220 about a week ago, so that will be the level to watch this week. The VIX dropped to 33% today, but that is still reasonably high; it suggests that traders are still rather cautious; it will take very little stimulus to start the selling. Trading volume in the S&P 500 actually fell a bit from yesterday to 3.1 billion shares, below the 50 dma. Trading was also down by 17% on the NYSE, but was up 3% on NASDAQ.
Tomorrow could be another volatile day in the markets due to Obama's speech to Congress. (Trivia: do any of you remember the name of the movie where the Martians blew up Congress?)
I will continue to watch $1120 and $1220 as the critical support and resistance levels that are defining this trading range on SPX. I will be cautious about any directional trades until we definitively break one of those levels.
Our September iron condors on RUT are in excellent shape. The condor with the 600/610 put spreads stands at a P/L of +$1,384 with delta = -$2 and theta = +$215. The Sept condor with the 560/570 put spreads stands at a P/L of +$2,720 with delta = -$15 and theta = +$163 (both Sept positions with 20 contracts). Today's rally forced me to hedge my Oct iron condor on RUT, so it is underwater, but the Greeks show that it is well hedged with position delta = -$13 and position theta = +$57 (on 20 contracts).
I have partnered with Mike Parnos to host a seminar in Las Vegas November 19-20. We are restricting the number of attendees so we can have a very personal and interactive meeting. You can read more about the conference here.
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The markets reacted positively to the ISM manufacturing index reading of 50.6 for August, essentially flat from July's 50.9. But those gains couldn't hold as traders looked forward to the jobs report tomorrow. SPX dropped $14 to close at $1204 on lower volume of 3.1 billion shares. RUT lost $18 to close at $709. Trading volume also dropped on the NYSE (-10%) and on NASDAQ (-13%).
Both yesterday and today SPX tried to break through $1230 but couldn't make it. This isn't very bullish behavior; we are still well below the 50 dma at $1255 which will likely provide stronger resistance. Traditionally, breaking through the 50 dma strongly in either direction is a strong signal for the continuation of that trend, whereas bouncing off the 50 dma is often the sign of a reversal or a sideways consolidation period. Many market analysts are watching for signs of a possible drop to re-test the lows in August. Thus, SPX's behavior at $1230 and at the 50 dma will be closely watched. As today's trading session drew to a close, traders were paring back on positions ahead of tomorrow's non-farm payroll report, aka, the jobs report.
My RUT Sept iron condor position stands at a P/L of +$824 with delta = -$11 and theta = +$162. The Oct condor remains hedged and stands at a P/L of -$2,130 with delta = -$10 and theta= +$48. The jobs report in the morning will likely create a bout of market volatility in the opening hour of trading - don't jump either way too quickly.
