- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2344
Trading today was largely choppy and sideways, with few news events or other catalysts to move the market one way or the other. The indexes opened the day modestly higher, then traded sideways until about 2:30 pm ET, when stocks broadly sold off. But the indexes had recovered much of those losses by the close of trading. RUT closed essentially unchanged at $604 while the SPX closed down about $3 at $1103.
My RUT Dec iron condor stands at a P/L of +$990, delta = -$120 and theta = +$230 and the Jan condor stands at a P/L of +$340, delta = -$61 and theta = +$98. The call spreads in both condors are about one standard deviation OTM.
Many options educators will tell you that the market makers take all of the time value for the weekend out of option prices early in the afternoon on Fridays. Thus, it would pay you to close your OTM spreads Friday afternoon rather than wait until Monday, thinking you might gain from additional time value decay. I wanted to test this idea with the following RUT put spreads, currently held in several of my accounts: 500/510, 540/550, and 550/560. About 20 minutes before the close Friday, I checked the closing prices for these spreads and then compared those prices this morning after about 30 minutes of trading. RUT was up about $5 this morning, so I adjusted my put spread prices based on their deltas. What I found was I could close all of my put spreads at better prices this morning and only a small portion of that improvement was due to RUT's increase in price. My 500/510 puts could be closed this morning for $0.15, an improvement of $0.05 over Friday, for options with zero delta. My 540/550 puts could be closed this morning for $0.45, an improvement of $0.15 over Friday. Delta only accounts for $0.04 of this change. My 550/560 puts could be closed for $0.55, a $0.30 improvement over Friday, and only $0.10 of this improvement could be attributed to RUT's price change.
Based on this limited data, I conclude that some of the weekend's time decay may be priced into the options on Friday, but certainly not all of the time decay was accounted for in these RUT options this weekend. In every case, I would have been better off to have closed my put spreads this morning. So RUT market makers may begin to adjust for time decay to some degree on Friday, but clearly not all of the weekend's time decay was pulled out of these RUT options early this particular weekend.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2169
The Labor Department surprised investors this morning with good news: unemployment dropped to 10% and only 11k jobs were lost in November, a large difference from October when 111k were lost. As one might expect, this pushed the markets to new highs in the first few minutes of trading, but they couldn't hold those gains. Some of the morning's losses were recovered in the last hour of trading to keep the indexes in positive territory for the day. RUT closed up over $14 at $603 while the SPX set new 2009 highs at $1119 in the first few minutes of trading, but the sellers came in and took it back down. Like RUT, buyers emerged in the last hour to close SPX up $6 at $1106. The positive employment news also bolstered the dollar, up 1.4% today. The market run in early trading was unusual of late in that it flew in the face of the rising dollar. It appears this market is consolidating the strong gains of the past few months in a narrow range; since Nov. 10, the S&P 500 has traded between $1087 and $1119. Over the same period of time, RUT has traded between $584 and $607. It is no wonder our iron condors have been maintenance-free the past few weeks!
My Dec iron condor on RUT stands at a P/L of +$450, delta = -$127 and theta = +$205. The 630/640 call spreads are right at one standard deviation after today's move up. Recall my rule: on the Friday before expiration, I close spreads that are less than two standard deviations OTM. So it is appearing likely that I will be closing these spreads next week unless RUT pulls back a bit. The Jan RUT condor was pulled back into the red by today's move upward with a P/L of -$300, delta = -$66 and theta = +$102. The Jan 650/660 call spreads are nearing an area that will require adjustment if RUT continues upward.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2412
The stock markets opened mixed this morning and couldn't seem to develop a trend. The Dow, NASDAQ and S&P 500 were all close to unchanged. The SPX closed at $1109 up less than a dollar; it appears the 2009 high for the S&P 500 is providing solid resistance at $1113. RUT was the best performing broad index with nearly a $7 rise to close at $596. The issue of the Fed Beige Book didn't stimulate much trading one way or the other. The ADP employment report this morning was worse than expected with a loss of 169k jobs in Nov, but represented an improvement over the Oct loss of 203k. The dollar was somewhat stronger today and that has led to stock market selling recently but that didn't seem have much effect today.
My Dec iron condor now stands at a P/L of +$1,210, delta = -$87, and theta = +$154. The Jan condor stands at a P/L of +$240, delta = -$39 and theta = +$94. The RUT price chart consists of a sideways choppy trend between $575 and $603 for the past 18 sessions. This is perfect for delta neutral traders.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2154
The markets traded weakly sideways through most of the day and then sold off broadly during the last thirty minutes of trading. Many traders are concerned about the jobs report in the morning and are taking some profits off the table until after they see the market's reaction. ADP's employment report yesterday is normally a pretty good leading indicator of the jobs report and its results were worse than expected for November, although it was still an improvement from October. The market is nervous. As always, be sure your contingency orders are in place. SPX closed down $9 at its strong support level of $1100 and RUT closed at $589, a loss of $7.
My Dec and Jan iron condors are not much changed from yesterday; the Dec position stands at a P/L of +$970, delta = -$87 and theta = +$207 while Jan stands at a P/L of +$440, delta = -$34 and theta = +$90. So far, so good. Barring any severe market moves, both of these condors are well positioned. So we now watch for the employment report in the morning and then see how this nervous market responds - hard to predict.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2420
Today's markets appear to once again be driven higher by weakness in the dollar. The $64,000 question is: when does a weaker dollar become a negative? Do you know the source for that metaphor? RUT rose over $8 to close at $588 while the SPX gained almost $14 to close at $1109. If you look at the SPX intraday chart, you will see another example of $1100 as a strong support level. Today's close on SPX is just shy of its 2009 high - will it break through? Today's economic news was weakly positive; home sales for Oct were up but November's manufacturing index was disappointing. Construction spending was expected to decline, but it came in flat - is that good?
My Dec RUT condor is moving into a good place as we move closer to expiration: P/L = +$1,530, delta = -$46, and theta = +$134. The put spreads are now over two standard deviations OTM while the calls are over one standard deviation OTM. My Jan condor stands at a surprisingly positive P/L of +$540, delta = -$21, and theta = +$134. It is unusual to have an iron condor on for only one week and be in the black, at least for now. All the talking heads appear to be looking for a correction, so that may mean we will soon break into new market highs for 2009.
