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The University of Michigan Consumer Confidence Survey reported out at 69.6, a small improvement from last month's 67.8. That report served to keep the markets trading near the unchanged line for most of the day. But after about 2 pm ET, the markets slowly declined into the close, but trading volume was greatly reduced. Trading was down 15% on the NYSE and over 27% on NASDAQ. Trading volume in the S&P 500 stocks dropped to 2.7 billion shares, well below the 50 dma. This was the lowest trading volume for the S&P 500 for this year. The SPX traded within $2 of its 50 dma at $1088 before pulling back to close down $4 at $1079. $1088 on SPX will be a key resistance level to watch for a measure of the market. RUT pulled back a bit more to close at $609, a loss of $7 on the day.
My Aug RUT condor closed the day with a P/L of -$1917 with delta = +$133 and theta = +$204. All of these spreads are greater than two standard deviations OTM except the 10 contracts of the 590/600 put spreads. I will be looking for an opportunity to close them on Monday. The Sept condor is in the black with a P/L of +$440, delta = +$50 and theta = +$47.
Have a great weekend.
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Initial unemployment claims of 484k were reported before the open this morning; while this wasn't much higher than last week's 482k, the market was expecting something more like 465k. This data, together with the fear generated by yesterday's market plunge, was sufficient to create a bout of selling as the market opened. But within a couple of hours, the markets were trading higher than the open; this oscillated back and forth all day, but the major indexes recovered most of their losses before the end of the day. RUT dropped as low as $611 early on, but closed at $617, off $3 for the day. SPX traded similarly, trading as low as $1077 before closing at $1084, down $6. Trading volume dropped off from yesterday with a 9% drop on the NYSE and a 1% increase on NASDAQ. About 3.6 billion shares of the S&P 500 stocks traded, down about 10% from yesterday. So today was still a bearish day on the street and now the SPX is firmly underneath the 200 day moving average which will likely serve as resistance to any bullish rallies. However, today's intraday recovery and the decrease in trading volume are encouraging me that the bottom isn't falling out of the market, but time will tell. The talk of a double dip is raging and may become a self-fulfilling prophecy if a crucial data report or other event occurs in the next few days.
As RUT bounced back this morning, I sold the Aug $630 puts hedging my Aug RUT iron condor for a small profit. This was more aggressive than I would normally play the trade. My Aug position has been hammered by adjustments to both the up side and the bottom side; adjustments usually reduce the profit potential of one's position, but allow the trader to stay in the trade and salvage a large proportion of the position's potential gains. In this case, I have had so many adjustments, I am running out of potential gains to salvage. Thus, I chose to remove this most recent hedge prematurely. If I can nurse this position though the weekend, I should be able to squeeze out a small gain. The Aug position now stands at a P/L of -$1657, delta = +$95 and theta = +$249. The Sept 530/540 and 740/750 RUT iron condor stands at a P/L of +$340, delta = +$36 and theta = +$67. So now we wait and see if we go lower.
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The drop of 0.9% in nonfarm productivity levels surprised the market this morning and caused a sell-off on higher volume. RUT dropped back to its 200 dma before bouncing to close at $646, down $13 on the day. SPX fell through its 200 dma but recovered to close at $1121, down $7 on the day. The FOMC announcement appeared to buoy the market a bit, but it was short lived. As expected, interest rates were unchanged but some of the Fed's language concerning the economy was sobering, confirming signs of very slow economic recovery and not giving a lot of hope for anything to change soon. As has been typical lately, the trading volume bounced up on the sell-off, increasing to 3.5 billion shares of the S&P 500 stocks, up 29% on the NYSE, and up 26% on NASDAQ.
My Aug iron condor on RUT was helped by this sell-off, now standing at a delta of -$27 and theta = +$265, while the Sept condor has a delta of +$14 and theta = +$55. RUT appears to be building strong support at its 200 dma at $642 while the SPX appears to have strong support in the range of $1100 to $1115. This pattern together with the weak volume on advances, suggests the risk to our condors is to the upside, not the downside. But, the key is to play what the market gives us, not what we predict. For now, both of my condors are well positioned.
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It appears that many traders began to take the Fed's assessment of the economy much more pessimistically after thinking about it overnight. The market sold off at the open and traded even lower as the day progressed. China's reports of weaker industrial production in July probably didn't help the situation. Talk of a double dip has once again taken the front row in traders' worries. RUT traded down $26 to close at $620 while the SPX closed down $32 at $1089, the 50 day moving average (dma). This move occurred on higher volume, with the S&P 500 stocks trading 4 billion shares, right at the 50 dma. Trading volume on the NYSE was up 15% and trading on the NASDAQ increased 11%.
In volatile markets like we have been experiencing, one's condor position can change overnight; yesterday, the Aug position appeared to be well positioned; today I bought one Aug $630 put for $17.45 to hedge this downside move; this brings the position to a P/L of -$1712, delta = +$31 and theta = +112. My Sept condor stands at P/L = +$980 with delta = +$58 and theta = +$19. The Aug position has now required six hedge adjustments plus four rolls of spreads up and down - what a volatile market! More importantly, we are still "in the game" with a shot at breaking even or perhaps even a small profit. Which way will the roller coaster run tomorrow?
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Markets traded up today, but again, the underlying volume wasn't strong. Advances on weak volume have become the standard for this market. RUT increased $9 to close at $660 while the SPX ran up $6 and closed at $1128. Trading volume declined 20% on the NYSE and declined 17% on NASDAQ. The S&P 500 stocks traded 2.8 billion shares, well below the 50 dma of 4 billion shares. One possible explanation for today's lower volume may have been rooted in traders looking forward to the FOMC announcement tomorrow. But in general, I think the recent low volume patterns of trading reflect traders' lack of conviction concerning the economic recovery.
The call spreads of my Aug iron condor remain uncomfortably close to the index. The short $680 calls have a delta of 23; time is helping since we now only have ten days to expiration. The delta of this position is now -$108, which underscores the price risk of further increases in RUT. Theta is now at +$255, so the theta/delta ratio is still strong. My Sept RUT iron condor at 530/540 and 740/750 is well balanced with a delta of -$13 and theta = +$62.
So now we look forward to the FOMC announcement tomorrow, although it doesn't appear that we can expect any news of much significance. Traders will be examining the statement closely for clues about future economic prospects, but I don't expect much of an effect on the market.
