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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1962
As mentioned in my blog yesterday, some analysts see $1125 as the top of the trading range for SPX. It certainly behaved that way today; SPX ran as high as $1127 before being pulled back by the bears to close essentially unchanged at $1121. RUT also pulled back a bit after running higher during the day. RUT closed at $649, down $3. Trading volume was essentially flat with 3.3 billion shares of the S&P 500 stocks traded; trading volume on the NYSE was flat and was up 6% on NASDAQ. A better than expected retail sales report encouraged traders before the open this morning. But profit taking started as soon as the market opened - too many up days recently and a lot of nervous traders remain concerned about the anemic economic recovery.
I am allowing my Sept RUT 530/540 put and 740/750 call iron condor to expire worthless and I think it is safe to log this one in as a $2,590 gain or a 15% gain on the capital at risk (20 contracts). The Oct RUT 540/550 put and 690/700 call iron condor stands at a P/L of -$40 with position delta = -$65 and theta = +$109. I have one Nov $690 call on as a hedge (my Oct $690 calls are at a delta of 18). For now, the Oct position is in good shape.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1931
The markets were buoyed today by the lack of surprises from the banking regulations revealed in Basel III; this boosted European banking stocks and also spread to our markets. Some positive economic data from China helped the markets as well. SPX closed at $1122 for a gain of $12 while RUT ran even harder to close up $16 at $652. An even more bullish sign was the increased trading volume across the board with the S&P 500 stocks trading up to 3.3 billion shares, just below the 50 dma at 3.5 billion shares. Trading on the NYSE increased 21% and increased 15% on NASDAQ. It is also noteworthy that both SPX and RUT blew through their 200 dma today - another bullish sign.
My Sept RUT iron condor is sitting at essentially full profit with both spreads far OTM; the deltas of the short options are less than one. I began to adjust my Oct RUT iron condor today and it now stands at a P/L of -$785 with position delta = -$74 and theta = +$121. If this bullish trend continues tomorrow, more adjustments will be required to keep this position out of trouble.
The analysts at iVolatility.com have identified a head and shoulders pattern on the SPX chart (left shoulder at $1150 back in January, the head at $1220 in late April, and the right shoulder at $1131 in late June). Since the neckline is at $1042 and the SPX failed to break through the right shoulder in July and only made it to $1125, they see SPX trading in the range of $1042 to $1125. By this analysis, if we see SPX break through $1125 (came close today), we may be headed higher; on the other hand, a break down through $1042 would signal a bearish trend - food for thought.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1985
The unemployment claims numbers boosted the markets this morning, but sellers came in in the afternoon and took back most of the gains. RUT ran as high as $642 but retreated to close unchanged at $635. SPX fared better, blowing through resistance at $1100 and closing at $1104, up $5 for the day. Initial unemployment claims came in at 451k, down from last week's 478k; this was a better improvement than expected by analysts. However, the continuing unemployment claims came in flat at 4.48 million and analysts expected a modest decrease. But today was another low volume trading day with a 2% decrease on the NYSE and a 16% decrease on NASDAQ. The S&P 500 traded flat at 3 billion shares, well below the 50 dma.
My Sept RUT iron condor at 530/540 and 740/750 stands at a P/L of +$2,450 with delta = +$8 and theta = +$54. Both spreads are greater than three standard deviations OTM with one week to go. The Oct RUT iron condor spread at 540/550 and 690/700 stands at a P/L of -$300 with delta = -$42 and theta = +$129. The delta of the 690 call is back to 13, so the sideways action of the past few days has been helpful. The Sept iron condor has been a relatively calm trade; only one hedge adjustment was made during its life and that was established one day and taken off the next. I looked back at my trading record for this blog this afternoon. Assuming the Sept trade expires worthless or I close it tomorrow, my total gain is now over 24%. But I have taken 4 losses out of 16 months of trading. So the win ratio is about 75%, close to what the probability calculations would have predicted. Most significantly, only two trades out of 16 had no adjustments. This record reinforces what I teach my students: you cannot trade the iron condor profitably without a robust system of risk management. The trader who sees the advertisement of the high probabilities associated with the iron condor will be eaten alive if he doesn't know how to adjust this trade.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1866
The markets continued to inch higher today, but on lower volume. SPX closed above its $1100 resistance level at $1110, up $5 for the day. RUT traded up $2 to close at $636. Trading volume for the S&P 500 dropped to 2.6 billion shares. Trading on the NYSE declined 9% and declined 1% on NASDAQ. Trading volume in the S&P 500 stocks has steadily declined since the big up day last Wednesday. The only economic data released today was the wholesale inventories report for July, up 1.3%; economists had expected a more modest 0.4% increase.
My Sept iron condor has pretty well exhausted its time decay; both spreads are over four standard deviations OTM, so I have left the position open and plan to allow the spreads to expire worthless, barring a move on RUT that brings either spread to less than two standard deviations OTM. It should close for its maximum gain of $2,590 or 15% on 20 contracts.The Oct iron condor stands just above break-even at a P/L of +$120, delta = -$57 and theta = +$123.
Have a nice weekend.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1971
Markets opened upward and chopped largely sideways most of the day, but closed with modest increases. RUT closed at $634 for a $5 gain, while the SPX broke through the $1100 resistance level but could not hold it. SPX closed at $1099, up $7 on the day. Trading volume was mixed but positive. It increased 4% on the NYSE and 21% on NASDAQ. The S&P 500 stocks traded 2.9 billion shares, slightly higher than yesterday but well below the 50 dma. Volatility dropped 2% today with the VIX closing at 23%. Traders did not seem to have much of a reaction either way from the release of the FOMC's Beige Book this afternoon. The Beige Book did note improved consumer spending, a good sign for the recovery.
My Sept iron condor on RUT stands at a P/L of +$ 2,290 with a delta of +$4 and theta of +$115. Both spreads are well OTM and most likely will be allowed to expire worthless at expiration. I will make that call Friday. My Oct position stands at a P/L of -$160 with a delta of -$45 and theta = +$117. So theta/delta remains strong, although we are close to the adjustment point on the call side (the delta of the Oct $690 calls is 14). So we continue to simply play what the market gives us.
