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A strong dollar and a disappointing consumer sentiment survey started the markets off this morning with losses. But, as the day wore on, the dollar gave back much of its gains and the market recovered most of its losses. The small and mid-caps outperformed the broad indexes today with RUT increasing over $5 to close at $611 while the SPX dropped almost $3 to close at $1076. Trading volume was up about 5% on the NYSE. Increased trading volume and strength among small and mid-cap stocks are bullish signs.
Today was a decision point for my Feb iron condors. The 640/650 calls were 1.8 standard deviations OTM, while the 540/550 puts were over three standard deviations OTM. So I closed the call spreads for $0.15. This leaves the position at a gain of $2,594. Presuming the put spreads expire worthless, we will be up $2,794 or 17% on our February iron condor.
At one point this morning, I almost removed the April put hedges on my Mar condors, but then the market strengthened. My Mar iron condor now stands at a P/L of -$890, delta = -$72 and theta = +$90. I almost bought one more April call hedge, but decided to hold off until Tuesday. That extra call would have cut delta in half but also reduced theta to about $74.
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Trading continued to follow the dollar in inverse fashion. The dollar was trading with gains relative to other currencies this morning and the market fell; then the dollar weakened and the markets took off. RUT closed up almost $10 at $605 while the SPX rose over $10 to close at $1078. Initial unemployment claims were better than expected this morning, but the dollar trade overwhelmed that news.
My Feb condors are doing very well at this point. The 540/550 put spreads are now over two standard deviations OTM and the 640/650 call spreads are more like 1.5 standard deviations OTM. The position stands at a gain of $2,614 with a position delta of -$2 and theta = +$136 - hard to be more delta neutral than that.
The Mar condor is being squeezed by today's upward move. The delta of the 640 calls hit 19 this afternoon, so I purchased two April $640 calls for $9.00. This position closed near breakeven with a delta of -$31 and theta = +$88. Without the adjustment, the position delta would have been -$87 and theta would be +$118. So our adjustment cut delta in half and reduced theta, but not terribly. If the market continues upward, I will be doing some "what if" analysis around adding one more long Apr call or simply closing and rolling the call spreads.
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A pullback in the dollar and rumors speculating about a bailout for Greece resulted in a strong open this morning and then a wild ride in choppy action the rest of the day. RUT ended the day at $595, up almost $9. The S&P 500 gained almost $14 to close at $1071. Of course, the question on everyone's mind is whether the correction has ended or more pain remains. And you can get all kinds of answers to that one. Just reading the price charts, both RUT and SPX are in what I would call "no man's land" - an area with few strong support levels to assure us of stability. In the case of RUT, we are right in the middle of that area of churning for RUT back in November before the breakout in December. SPX broke a significant level of support at $1073 last week, and the next solid support level is down at $1030, which, coincidentally, represents a correction of about 10% from the highs in January.
Our RUT iron condors are faring well amid all of this consolidation, now that we have repositioned them. The Feb position now stands at +$2,274 with a position delta of +$17, and theta = +$135. The put spreads are now > two standard deviations OTM and the call spreads are just inside two standard deviations. My Mar condor is essentially at breakeven with delta = -$53 and theta = +$110. The short $640 calls have a delta of 16 and stand just inside one standard deviation. Without much economic news this week, the market is likely to be pretty choppy as rumors have more of an effect than usual.
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The markets continue to largely track the dollar, which traded higher today based on both Bernanke's remarks prepared for the House Financial Services Committee as well as skepticism of a plan for Germany to bail out Greece's financial difficulties. RUT traded over a $10 range today but closed up less than a dollar at $596. The SPX gave up less than $2 to close at $1068.
My Feb RUT iron condor now stands with both call and put spreads right at plus and minus two standard deviations. The position is showing a gain of $2,234 with a delta of +$29 and theta = +$173.
The Mar RUT iron condor stands near breakeven with a delta of -$50 and theta = +$110.
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The markets seemed a bit lethargic today, largely trading sideways and weaker as the day wore on. The dollar strengthened throughout the day and that appeared to drive the major stock indexes lower. Trading volume was significantly lower as well. The RUT closed at $586, down over $6 while the SPX dropped $9 to close at $1057.
This sideways consolidating action was helpful for my condors after the required series of adjustments last week. My Feb iron condor now stands at +$1,614, delta = +$48, and theta = +$170. The Mar condor is near breakeven with delta = -$31 and theta = +$105. As I start to anticipate this coming Friday's decision point for our February positions, the Feb position is reasonably well positioned with the 640/650 call spreads at 2.2 standard deviations OTM and the 540/550 put spreads about 1.4 standard deviations OTM. We don't have any major economic announcements scheduled this week, so this choppy sideways trading may continue; however, news announcements concerning the financial stability of several European countries is the wild card (Greece, Spain, et al.).
