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The jobs report came out this morning and was relatively good with an increase of 192k jobs and the unemployment rate fell to 8.9%. But apparently, yesterday's wild ride was predicated on an even better jobs report. Of course, oil rising to $104/bbl didn't help but many traders are starting to see the Middle East and Libyan situations as old news. However, the rumors are still flying and that contributed to the low points of trading today. By the end of the trading session, much of the earlier losses were recovered. SPX traded as low as $1313, but recovered to close at $1321 for a loss of $10. RUT fared better, losing $4 to close at $825. Trading volume was flat to slightly down with 3.6 billion shares of the S&P 500 stocks trading; trading on the NYSE was down 2% and down 6% on NASDAQ. That relatively low volume was a positive sign, given how far down the markets traded earlier today.
My Mar iron condor stands at a P/L of +$3,000 with a position delta of -$15 and theta = +$168. The spike up in IV today took a bit off of this position, but it is essentially delta neutral with 13 days to expiration. If the bull market resumes and RUT breaks its recent high at $838, I will close the 875/885 call spreads. Otherwise, the next decision point comes next Friday. My Apr iron condor at 700/710 and 900/910 on RUT is essentially at break-even with delta = -$26 and theta = +$78.
I believe many traders were lightening up positions today to lower their global event risk over the weekend. If that was the case, and nothing dramatic happens over the weekend, we may well see some buying on Monday. We'll see.
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It certainly doesn't seem to me that the situation in Libya has stabilized and oil prices are certainly quite high and most analysts are still predicting higher oil prices. And the market takes off for its highest gain this year?? I guess this just underscores how difficult or impossible it is to predict the markets. SPX closed at $1331, up a whopping $23. RUT gained $18 to close at $829. But trading volume didn't rise as much as you might expect on such a strong upward push. 3.5 billion shares of the S&P 500 stocks traded, just above the 50 dma at 3.4B. Trading on the NYSE was up 3% and trading volume on the NASDAQ was up 1%.
Some positive unemployment claims data may have helped the market; 368k initial unemployment claims were reported, down from last week's 388k. Continuing unemployment claims dropped 60k to 3.77 million. The ISM Services Index came in at 59.7 for February, up from January and beating analysts' estimates.
My Mar condor now stands at a P/L of +$2,600 with delta = -$40 and theta= +$204. Now that we are getting into the last two weeks before expiration, theta is ramping up. Now all eyes are focused on tomorrow's jobs report; much of today's run may have priced in a very good number. A disappointment could be brutal for the markets.
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Continued unrest in the Middle East and Libya drove up the price of oil and that, in turn, generated selling pressure on equities. Traders are concerned about the impacts of $100 oil on the tentative economic recovery both in the US and globally. The SPX opened in positive territory but almost immediately started selling off and steadily declined all day. SPX lost $21 to close at $1306 while RUT closed at $807, down $16. Trading volume was up, with 3.7 billion shares of the S&P 500 stocks trading. Volume was also up 6% on the NYSE and up 10% on NASDAQ. If you are looking for some positive news amid today's bloodshed, it might be the fact that today's spike upward in volume was less than the first three trading sessions of last week or on "Egyptian Friday" (January 28). But I may be guilty of whistling in the dark.
Volatility (VIX) spiked back up and erased the declines of the past two days. The ISM manufacturing index came in at 61.4 for February, up from the previous month's 60.8; this is the highest level since 2004. Construction spending was down 0.7% in January, which isn't as bad as many analysts expected, given the bad weather across much of the country in January.
My March iron condor on RUT stands at a P/L of +$2,500, delta = +$26 and theta = +$140. Both spreads are over 1.5 standard deviations OTM. So this position appears to be well positioned, in spite of the current market softness. For this position we will continue to trade what the market gives us; for our directional positions, we will anxiously watch the Middle East.
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Oil prices broke through $102 today and yet the stock market traded largely sideways and even managed to close with small gains for the session. SPX closed up $2 at $1308 and RUT gained $4 to close at $811. Trading volume was down from yesterday with 3.2 billion shares of the S&P 500 stocks changing hands. Trading on the NYSE was down 11% and was also down 10% on NASDAQ.
I believe this market is caught between two strong but conflicting perspectives. On the one hand, traders are afraid that high oil prices will shut down the economic recovery and may even push us into the infamous "double dip" that was the overwhelming fear for a time last year. On the other hand, we continue to see economic data and company earnings reports that support the idea of a continuing economic recovery. Yesterday's Chicago PMI hit a 20 year high, and today, ADP reported the creation of 217k new jobs. In addition, the Fed's Beige Book was released today and reported continued economic growth and strong retail sales across the 12 Fed districts. The result is a market that breaks to the downside one day and then recovers the next. So for the time being, the market may well trade somewhat sideways with a slight upward bias, trapped between these two perspectives.
My March iron condor stands at a P/L of +$2,660 with a position delta = +$17 and theta = +$143.
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The markets calmed further today as the Saudis assured the world they would make up for any oil supply disruptions from Libya. Oil prices dropped to $97 and stock prices climbed modestly. The SPX gained $7 to close at $1327 and RUT rose $2 to close at $823. Volatility dropped to 18.4%. The Chicago PMI came in at 71.2, a 20 year record high. Pending home sales dropped 2.8% in January, but a decrease of 3.2% had been predicted by analysts. Trading volume increased from Friday with 3.3 billion shares of the S&P 500 trading, about 100 million shares below the 50 dma. Trading increased 17% on the NYSE and increased 8% on NASDAQ.
My Mar iron condor at 730/740 and 875/885 stands at a P/L of +$2,500 and delta = -$22 and theta = +$157 with 17 days to expiration. I was looking at the iron condors traded in this blog since June 2009 and the number of months where no adjustments were necessary stood out: only three out of 22 iron condor positions were established and closed for a gain without any hedging or rolling of spreads up or down. I position these condor positions where the probability of success is typically about 85% or better. One could draw the conclusion that 19 of the 22 positions (or 85%) should have been expected to have resulted in a profit without the need for any adjustment. But that would be naive on several levels.
The probability calculation I refer to is the probability of the spreads closing OTM, or worthless at expiration. If one had calculated the probability of one of the condor's spreads being ITM at any time before expiration, you would have been surprised by the results. The probability of the condor's spreads expiring OTM at expiration includes many events where one of the spreads moves ITM and then back OTM before expiration. Assuming you employ any kind of risk management, you are not going to sit by and watch the index move into or even past your spreads without taking action - that would be foolish and could be very expensive. So even if we were to assume that the calculated probabilities would always match trading reality (they won't but that is another topic of discussion), we will have to hedge or adjust our condor positions much more often than the calculated probabilities would suggest. Thus, a robust system of risk management is not just a good idea; it is essential for your trading success.
