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Expectations of additional quantitative easing by the Fed drove the U.S. dollar to an eight month low and fueled a broadly based market surge on strong volume. SPX ran up $24 to close at $1161 while RUT ran up $20 to close at $689. Trading volume in the S&P 500 stocks hit 4 billion shares, only matched recently on the September option expiration Friday over two weeks ago. Trading volume was also up 26% on the NYSE and up 17% on NASDAQ. The ISM Services Index reported out at 53.2 for September, up from last month's 51.5. The VIX has been in the range of 21% to 24% for the past several weeks and pulled back to 22% today.
I hedged both of my iron condors today, but the Oct position is in serious trouble with delta = -$38 and theta = +$109. Trying to salvage a gain in this position yesterday may be my undoing. This bull market is threatening to bulldoze over my 700/710 call spreads. The November condor is hedged by December $740 calls and has a position delta of -$32 and theta = +$57.
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The stock markets opened weak and traded down all morning, then meandered sideways for the afternoon. However, trading volume was weak, suggesting the institutions are sitting on the sidelines with no serious selling ongoing. Trading in the S&P 500 stocks dropped to 3.1 billion shares while trading on the NYSE dropped 12%; to a lesser degree, trading on NASDAQ was down 2%. SPX traded down to $1132, near its recent support level at $1131 before bouncing back to close at $1137, down $9. RUT behaved similarly, trading down as low as $666, near its peak back in late July before the drop in August; RUT closed down $10 at $669. The SPX support level of $1131 is worth watching closely because the next levels of strong support are quite a bit lower at $1100 and $1040.
Factory orders for August fell 0.5%; this may have set the negative mood on the street today. But pending home sales surprised analysts by increasing 4.3%; analysts were expecting 1%.
I took today's weakness in RUT as an opportunity to attempt to salvage my Oct iron condor on RUT. I had closed the 690/700 calls and rolled to 720/730 last week. I was able to close the 720/730 spreads for a $1,020 profit and roll down to 700/710 today. That position now stands at a P/L of -$2,063, delta = -$70 and theta = +$337. The Nov condor stands at a P/L of -$600, delta = -$50 and theta = +$92. Both positions have strong theta/delta ratios but the Oct position theta is really starting to come on strong as we enter the last ten days before expiration.
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A flurry of end of the quarter trading pushed volume higher today but trading was largely sideways for the day. The SPX closed the day down $4 at $1141 while the RUT lost less than $2 to close at $676. The markets traded higher this morning on the basis of some favorable economic reports. Initial unemployment claims dropped 16k to 453k while the continuing unemployment claims dropped 83k to 4.46 million. The Chicago PMI rose to 60.4 from last month's 56.7 and the revised estimate of second quarter GDP rose a bit to 1.7% from 1.6%. Tradng volume was up across the board with an 18% increase on the NYSE and a 17% increase on NASDAQ. Trading in the S&P 500 stocks rose above the 50 dma to 3.7 billion shares.
I closed the Nov hedge options in my Oct iron condor on RUT this morning. This position is now in salvage mode; it will end in a small loss at best. The current Greeks are excellent with delta = -$9 and theta = +$229. The Nov condor stands at a P/L of -$1,160 with delta = -$60 and theta = +$85. The delta of the $740 calls pulled back to 16 today so there was no need to adjust this position as yet.
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Several positive economic reports appeared to give the market a upward edge today, but the trading was choppy and mostly sideways. SPX closed up $5 at $1146 and RUT closed at $679, up $3. Trading volume was generally down from yesterday with 3.6 billion shares of the S&P 500 stocks trading today, but this is still above the 50 dma. Trading volume was down 8% on the NYSE and down 20% on NASDAQ. Personal income rose 0.5% and the final revision of the Michigan Consumer Sentiment report came in higher at 68.2 (66.6 last month). Construction spending for August was up 0.4%, a big improvement from July when it was down 1.4%.The ISM manufacturing index dropped from 56.3 to 54.4 for September.
SPX remains in a tight trading range from $1131 to $1150 and has been unable to hold a close outside that range. My Oct iron condor continues to improve its position with the passage of time; now it stands at -$2,723, delta = -$47 and theta = +$229. Both spreads are greater than one standard deviation OTM. The Nov condor has a P/L of -$1,360, delta = -$70 and theta = +$88.
My decision to roll my calls and puts in the Oct condor earlier this week bears some scrutiny. At this point, one might argue that this market is range bound and that a breakout downward may be more likely than a breakout upward. I was being conservative by closing and rolling the spreads; now that I have closed the November hedge calls, the best this position can do is a modest loss. But remaining in the previous position was exposing me to an upward breakout and a larger loss; the Nov hedges help contain the losses, but it isn't a perfect hedge. Trading the iron condor, like any trading strategy, is subject to your personal judgment. We may well make different decisions about when and how to hedge the position. The key is to be sure you are using a consistent system of risk management.
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All of the major indexes closed down modestly today, with the exception of RUT, the index I wanted to pull back a bit! Stocks opened weakly this morning but then recovered and traded near the unchanged mark for most of the day. SPX closed at $1145 for a $3 loss, but RUT gained $2 to close at $678. Trading volume was flat to down for the day with a 5% drop on the NYSE and a 2% drop on NASDAQ. Trading in the S&P 500 stocks rose slightly to the 50 dma at 3.4 billion shares. Some of the news coming out of Europe regarding sovereign debt and the European banks banks has been unsettling and probably accounted for today's weak market in the absence of any significant economic news.
My Oct iron condor has been teetering on the brink of major adjustment for several days if not weeks. Today's strength in RUT pushed me to act. Buying the Nov $690 calls gave me time to wait for RUT to either pull back or at least just trade sideways, but I decided it was just not prudent to wait any longer. I closed and rolled my 690/700 call spreads to 720/730 and closed and rolled my 540/550 put spreads to 610/620. The position remains underwater, but this improved the position Greeks markedly to a delta of +$56 and theta = +$189. At this point, we are in salvage mode. Depending on the outcome of our Nov $690 call hedges, we will either break even or incur a small loss. But the condor trader always looks at the big picture - we made $2,590 last month, so if we break even or lose four or five hundred dollars this month, that's ok. The crucial success factor is to manage the risk so we never incur the large debilitating loss. Our Nov condor sits at a P/L of -$1,360 with delta = -$65 and theta = +$82. If RUT continues upward, we may be adjusting that position as well since the delta of our Nov $740 calls is up to 18.
