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The markets dropped at the open this morning, but before the first hour of trading was over, the indexes turned upward and steadily rose all day long. The major indexes recovered all of yesterday's losses, and the Dow exceeded the highs for the new year set on Monday. RUT and SPX closed just shy of their Monday highs. However, the low trading volume continues, so it is hard to place too much weight on today's gains. It appears the markets are trapped in a narrow trading range without sufficient conviction to break out in either direction.
My short term RUT January iron condor stands at a P/L of +$290, delta = -$35, and theta = +$424, while the long term (51 days) RUT Jan iron condor stands at a P/L of +$2,080, delta = -$70 and theta =+$848. The call spreads remain just outside of two standard deviations OTM. Unless RUT trades downward tomorrow, I will close those spreads rather than allowing them to go into expiration. The Feb RUT iron condor closed at a P/L of +$880, delta = -$57 and theta = +$94.
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The markets opened down a bit this morning and then started trading steadily downward from about 11:30 ET through the rest of the day. Even a weak dollar didn't seem to help. Some analysts attributed this to Alcoa's disappointing earnings report last night, but that just seems like rationalization to me. RUT fell nearly $9 to close at $636 while the SPX closed at $1136, down almost $11. On the positive side, trading volume was below one billion shares on NYSE where the average trading volume last year was about 1.4 billion shares, so this doesn't appear to be a major institutional sell-off.
This move downward positioned all of my condors back close to delta neutral positions. The low probability Jan iron condor on RUT stands at a P/L of +$320 with delta = -$5 and theta = +$158. The high probability Jan iron condor on RUT stands at a P/L of +$2,140 with delta = -$10 and theta = +$315. The call spreads of these condors now stand at 2.5 standard deviations OTM while the put spreads are over four standard deviations OTM. If these spreads remain outside two standard deviations OTM, I will allow them to expire worthless.
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The markets traded sideways until the last hour of the day, when they tacked on some minimal gains once again. The S&P 500 (SPX) closed at $1145, up about $3 and the Russell 2000 Index (RUT) closed up less than $3 at $645. The unemployment report this morning didn't move the market one way or the other; the unemployment rate stayed at 10%, which might have been regarded as good news in a "less bad" sort of way, but over 85,000 non-farm payroll jobs were lost, far more than the 8,000 that were expected. VIX continues to drop, closing today just above 18%. Volatility hasn't been at these levels since the summer of 2008. Since iron condors are classic negative vega positions, this is beneficial for those positions.
This sideways drift for RUT has been helpful for my Jan iron condors that are struggling to move into positive gain territory. My low probability, or short term condors have been handicapped by the adjustments made several weeks ago when the market bumped up. This condor now stands at a P/L of -$480, delta = -$97 and theta = +$160. Normally, I would have closed the 660/670 call spreads today, since they are right at one standard deviation OTM, and my rule is to close spreads on the Friday before expiration when they are within two standard deviations. But I am trying to salvage a small gain out of this trade. The delta of my short 660 calls stands at 17. So I will continue to hold this position into next week to attempt to get closer to a breakeven or the maximum possible gain of $470.
The high probability RUT iron condor has moved into the black, and stands at a P/L of +$540, with a delta of -$195 and theta of +$320. Theta for the overall position of both condors is nearly $500 per day. I am banking on continued subdued market moves to allow this theta to work for me. This is the classic, "do as I say, not as I do" situation. As we move closer to expiration, it makes it easier to take this risk. Stay tuned.
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The futures suggested a strong market before the open this morning, but that didn't materialize as stocks largely traded sideways all day. There isn't much news to move the market this week; Alcoa announces earnings this evening, but the earnings reports likely to move the market don't begin until next week. Alcoa was one of only a few stocks to move up in today's market. RUT closed unchanged at $644 while the SPX inched up $2 to $1147.
My short term condor for January has almost moved into the black with a P/L of -$140, delta = -$73 and a theta of +$313. The Jan longer term or high probability condor stands at a P/L of +$1,220 with delta = -$145 and theta = +$626. These positions are enjoying huge theta decay at this point! Our Feb RUT iron condor stands at +$700, delta = -$42 and theta = +$85. Boring markets make for happy iron condor traders.
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The markets had another lackluster, largely sideways trading day. RUT traded up in the last hour to close at $642 while the SPX traded up almost $5 to close at $1142. The dollar traded up strongly and that probably weighed on the market. The strong bullishness during the last hour appears to show confidence in the unemployment numbers due in the morning. It seems as though all of the talking heads and news outlets are singing the same song: something to the effect that we shouldn't expect good news; just less bad news will be welcome; the recovery will be slow, etc. So barring a large unexpected jump in the unemployment rate, the market should take the unemployment report in stride. It is a little bit of a concern when everyone seems to be in optimistic agreement; should we worry that a correction is near?
My short term Jan iron condor is still underwater at-$580, delta = -$91 and theta = +$145. The long term iron condor for Jan stands at +$340, delta = -$182 and theta = +$290. My Feb RUT iron condor stands at -$140, delta = -$51 and theta = +$94. Tomorrow should be interesting.
