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A surprising jump in unemployment claims took the market down sharply at the open this morning, but it steadily erased most of the losses by the close of trading. SPX closed unchanged at $1315 while RUT resumed its hard charging ways by gaining $4 to close at $827. Trading volume was flat with three billion shares of the S&P 500 trading today. Trading volume was down 2% on the NYSE and down 2% on NASDAQ. Members of the FOMC reaffirmed their plans to continue quantitative easing; many have been criticizing their "easy money" approach in light of increasing food and fuel costs; but the Fed sees lagging job growth and is willing to risk inflation to reboot the economy.
Initial unemployment claims jumped to 412 thousand, an increase of 27k from last week. Continuing unemployment claims dropped 58k to 3.68 million. The PPI increased 0.7% in March, fueling debate about inflation and Fed policy.
My May iron condor on RUT moved slightly into the black (+$62) with a position delta of -$6 and position theta = +$58. The 720/730 put spreads are nearly two standard deviations OTM while the 890/900 call spreads are over one standard deviation OTM and the 920/930 call spreads are nearing two standard deviations OTM.
Now we return to trying to predict this market - it seems the bears and the bulls are pretty evenly matched at this point. And trading volume appears to suggest most big players are sitting on the sidelines watching the struggle. Of course, the beauty of our delta neutral trades is that we don't need to predict what is coming.
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The markets traded largely sideways today after opening positively this morning, but then slowly weakening. SPX closed unchanged at $1314 while the RUT tacked on $2 to close at $824. SPX remains right at its 50 dma; RUT bounced off the 50 dma this morning and then closed higher. Trading volume was flat to down with 2.9 billion shares of the S&P 500 trading; this remains below the 50 day moving average at 3.3B. The Fed released the Beige Book this afternoon and that may have helped perk up the market a bit with some evidence of continued economic recovery.
My May iron condor on RUT stands at a P/L of -$498 and delta = -$0.7 and theta = +$76. The remnants of our April condor will expire worthless this weekend and then we will start to look at establishing the June condor position next week.
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The markets slowly traded downward as the day wore on, but most traders were watching from the sidelines. SPX closed at $1324, down $4 and RUT has lost its supremacy, closing down $7 at $834. RUT has now traded below its 2011 high set in mid-February; the next support level is $830. Significantly, trading volume in the S&P 500 hit its lowest level of 2011 at 2.4 billion shares. Trading was down 1% on the NYSE but was up 28% on NASDAQ. After the bell, Alcoa beat earnings estimates but disappointed on revenues; we'll see if that sets the tone for tomorrow's trading.
I removed the hedge on my RUT May iron condor position today. That leaves me with a P/L of - $1,318 and delta = -$34 and theta = +$94. The theta/delta ratio of about three-to-one is excellent. If RUT continues roughly sideways to down for a few weeks (38 days left), we will salvage a profit from this position. That is the advantage of a hedging adjustment rather than closing spreads as the index moves against the position. We remain in the position with an opportunity to close for a gain for the month.
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Trading opened in the red today and slid further as the day wore on. Alcoa's miss on revenues was taken as a negative commentary on the economy even though Alcoa beat earnings estimates. Oil prices dropped to $106/bbl after being as high as $113/bbl yesterday; this move took the energy stocks down but did nothing to help the overall market. SPX closed at $1314, down $10 and RUT lost $12 to close at $822. So RUT continues to beat SPX on the way down, just as it did on the way up. SPX dropped through the 50 dma at $1315 to $1310 before bouncing back to close at $1314, essentially at the 50 dma. RUT sliced through support at $830 and never looked back. RUT's next solid support level is at $808-$810. Trading volume was mixed, but generally up with 3.2 billion shares of the S&P 500 trading, just shy of the 50 dma at 3.3B; trading volume was up 17% on the NYSE, but down 82% on NASDAQ (due primarily to yesterday's unusually high trading volume on NASDAQ).
My May iron condor on RUT is back to a perfectly delta neutral position with a P/L of -$868, delta = $0.1 and theta = +$77. I have rarely had a position so delta neutral this far into the trade. Delta of the $890 calls has returned to 8. We still have a maximum potential profit of $1,442 after all of the adjustments we have made to stay in the position. Our put spreads at 720/730 remain almost two standard deviations OTM and the 890/900 call spreads are about 1.2 standard deviations OTM. So this position is in pretty good shape with 37 days remaining.
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The markets traded sideways all morning and then slowly lost steam in the afternoon. Buying in the last hour of trading recovered much of the earlier losses. SPX closed at $1328, down $5. Unlike the past several sessions, RUT fared worse than SPX, losing $9 to close at $841. The absence of economic data or earnings announcements seemed to leave traders without much incentive to trade. Trading volume matched recent lows with 2.7 billion shares of the S&P 500 trading today. Trading volume dropped 8% on the NYSE and dropped 9% on NASDAQ.
The pull back in RUT took much of the pressure off of my May iron condor but I am waiting until Monday to see if it makes sense to remove my hedges. I have been burned before removing hedges too quickly. Small losses on hedge options are like the insurance premiums on your house. Even if my house didn't burn down, I don't feel badly having paid the insurance premium. The P/L stands at -$1,650 with delta = +$15 and theta = +$56. So our price risk is minimized and yet theta is still reasonably large.
Have a great weekend.
