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- Written by Dr. Duke
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- Hits: 1950
Friday's gains were slowly but surely taken back in a light volume trading day. Trading volume may continue to drop as we near the holiday weekend. Trading on the NYSE and the NASDAQ were both off 26% today. Trading in the S&P 500 stocks dropped dramatically to 2.6 billion shares from Friday's 3.7 billion shares. The broad indexes all closed at or near session lows; SPX dropped $16 to close at $1049, but still well above support at $1040. RUT also traded off to close at $602, down $15, but still above support at $588. I have pointed out support because I believe the market is caught in a trading range that will probably last through the holiday weekend; if SPX breaks $1040, then we are in trouble. Personal income was reported to have risen 0.2% while personal spending rose 0.4% and the PCE price index rose 0.1%. So the economic data wasn't the problem. Perhaps the traders are in a "wait and see" mode until after Labor Day.
In the meantime, my Sept and Oct condors are well positioned. The Sept iron condor on RUT stands at a P/L of +$950, delta = +$53 and theta = +$112, while Oct stands at a P/L of +$240, delta = -$20 and theta = +$78. Trading ranges are good for condors! Time decay continues while we wait for the market to find its direction.
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The markets appeared encouraged initially this morning after seeing that the report of initial unemployment claims wasn't as high as expected (came in at 473k, down from last week's 504k). But that didn't last. The Federal Reserve bank at Kansas City reported stalled manufacturing activity in their district. Whether it was that news or just continued double dip fears, the markets traded off the rest of the day, closing near the day's lows. The SPX closed at $1047, down $8, while RUT traded down $5 to $600. Trading volume also declined 20% on the NYSE and dropped 10% on NASDAQ. Trading in the S&P 500 stocks declined to 3.3 billion shares. Both RUT and SPX appear to be building strong support levels, but it would be premature to take this as bullish. The double dip could still be lurking out there.
My Sept condor stands at a P/L of +$490, position delta = +$54 and position theta = +$102; the freshly minted Oct position stands at a P/L of -$460, delta = -$17 and theta = +$84. The theta/delta ratios of both positions are strong and both positions have ample safety margin at this point.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1979
The markets opened weakly this morning but the existing home sales report at 10 am ET sent the markets plunging. But on the positive side, the markets recovered quickly, although the major indexes still closed the day in the red. RUT fell to $589 before recovering to close at $596, down $7 on the day. This matched RUT's low in early July, so it strengthened that support level and can be seen as offering some encouragement; but the flip side is that if RUT breaks through $589... look out below! SPX lost $15 to close at $1052. Both indexes sold off into the close. Trading volume was up across the board today with a 35% increase on the NYSE and a 28% increase on NASDAQ. Trading in the S&P 500 stocks jumped up to 3.8 billion shares today; that is slightly above the 50 day moving average at 3.7 billion shares. The 50 dma has been steadily dropping since mid-June.
My Sept condor stands at a P/L of +$290, delta = +$70 and theta = +$61. This theta/delta ratio of about one-to-one shows that we are nearing the adjustment edge of this position. But after RUT rebounded, the delta of the Sept $540 puts had recovered to 16. This morning's plunge in RUT scared me. I immediately bought two Oct $540 puts, but the sold them about 30 minutes later for a loss of $180 after RUT rebounded. It was the classic whip saw - but better safe than sorry.
The economic data appears to strongly support the premise of a faltering recovery at a minimum. The question now is: has the market's drop of the past three months been the forward looking market response or is there more downside to come? Today's sharp drop after the existing home sales report would argue there is more downside to come as the data worsens, but the rapid intraday recovery appears to refute that interpretation. In the meantime, be sure you are managing your risk and not "betting the farm" on your prediction.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1896
Today began with a heavy dose of disappointing economic data: new home sales fell 12.4%, durable goods orders only increased 0.3% (analysts expected 3%), and Standard and Poors downgraded Ireland's debt. That sent the major indexes tumbling, but, surprisingly, the drop was short-lived. The markets recovered all of the drop and closed with reasonable gains. The SPX dropped as low as $1040 before rebounding to gain $3, closing at $1055. RUT dipped to $589 again today, reinforcing that support level. Then RUT recovered its losses and closed up $9 at $605. Trading volume decreased across the board with a 4% drop on the NYSE, and a 5% drop on NASDAQ. The S&P 500 stocks traded down to 3.7 billion shares, just below the 50 dma.
After watching RUT rebound off strong support at $589 for the second day, I decided to open my Oct RUT iron condors today at 480/490 and 690/700 for a credit of $2,900 (20 contracts). The Sept position at 530/540 and 740/750 stands at a P/L of +$690 with position delta = +$50 and position theta = +$91. Today's rise of RUT moved my theta/delta ratio back to a more healthy value.
Today's recovery was encouraging, but one has to temper that with the decreased trading volume.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2007
The markets ran up strongly first thing this morning but were quickly pulled back by the bears and traded along the neutral line most of the day. But the last hour was all selling with the indexes closing at or near their lows for the day. The SPX ran as high as $1081, but closed down $4 at $1067. RUT behaved similarly, running up to $618 before closing at $603, down $8. Trading volume was down across the board, with a 24% decline on the NYSE and a 13% decline on NASDAQ. The S&P 500 stocks traded under three billion shares, well under Friday's volume and below the 50 day moving average.
There was no economic news to drive the market either way today. Some M&A news appeared to boost the market this morning, but it wasn't sufficient to hold the intraday highs. It seems as though the market is afflicted with a general malaise or fear that leads to profit taking whenever stocks trade higher. The low trading volume suggests this sell off is the result of short term trading in and out, rather than a general institutional exit. But the danger of this market is that it won't take much bad news to set off a serious drop.
My Sept iron condor on RUT stands at a P/L of +$740 with a position delta of +$56 and position theta of +$72 on 20 contracts. I plan to initiate my Oct condors later this week.
