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Standard and Poors warned that it may be forced to downgrade US debt at some point in the future and changed its outlook on US debt from"stable" to "negative". This drove markets down sharply at the open this morning, but SPX bounced at $1295 about 11 am ET and began to recover some of its losses throughout the day. SPX closed at $1305, down $15. RUT lost $13 to close at $822. In my opinion, traders realized that nothing really had changed and started picking up some bargains in the market. After all, who is surprised that the US has a debt/spending problem? Trading volume was modestly higher with 3.6 billion shares of the S&P 500 stocks changing hands. Trading on the NYSE was up 4% and was up 1% on NASDAQ.
Today's move down was helpful for my May iron condor position; it has moved into the black with a P/L of +$362, delta = +$8, and theta = +$53.
One has to be impressed with the resilience of this market; we keep having a variety of news shocks take the market down and get the bears excited. But it has been well contained in every case. Trading volume has remained fairly low with the large institutions remaining on the sidelines. The continuation of the bull market trend may be in doubt, but the much anticipated emergence of a bearish trend has not developed. But my iron condors don't depend on my market predictions. I find it easier to trade what the market gives me.
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Several positive economic reports drove markets higher at the open this morning and resulted in higher closes on all of the major market indexes. SPX closed up $5 at $1320 and RUT gained $8 to close at $835. The CPI rose 0.5% in March, matching February's rise and calming some inflation fears by those who expected an even higher rise. The New York Empire Manufacturing Survey reported 21.5 for April, up from March's 17.5. The University of Michigan Consumer Sentiment Survey reported a value of 69.6 for April, up from 67.5. And industrial production increased 0.8% in March - all in all, a pretty positive set of reports.
My May iron condor on RUT stands at roughly break-even with a position delta = -$16 and theta = +$68. With 34 days to expiration and our short options with deltas of 5 to 8, we are well positioned. Decreasing volatility is also helping this position.
Have a great weekend!
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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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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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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.
