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By late in the day, the general market consensus appeared to be that Dubai's credit problems were not likely to spread across the globe. The markets opened up a little and then traded down and sideways until the last hour of the day. That last hour lifted the indexes into positive territory. RUT moved up almost $3 to close at $580 while the SPX closed at $1096, up about $4. Trading Friday and today exemplify what I have noted in this blog several times over the past few weeks - this is a nervous market. It doesn't take much to push it off the edge. However, rather than try to predict the next move of this market, I prefer to simply keep my positions relatively delta neutral and maintain robust risk management. Keep your stops in place and adjust when your system dictates.
For you chart readers and candlestick fans, take a look at the RUT chart. Today's candle was a classic hammer that often defines the support level and signals a reversal of the down trend. The low for the day was about $568 and the close was firmly back into the range of congestion from about $575 to $605 this chart has been mired in since early November. This pattern would suggest a continuation of this sideways consolidation or the beginning of a new up trend. I am more inclined to expect a continued period of consolidation following the strong up trend of the summer and early fall. But, as noted above, it won't take much negative news to push this market into a correction.
My Dec iron condor is in good shape with a P/L of +$1,450, delta = -$4 and theta = +$124 - your Greeks don't get much better than that! The Jan condor is standing at a P/L of +$140, delta = +$4 and theta = +$78. Again this position's Greeks are near perfect, and this is especially nice since this condor is relatively new. When you establish condors in the range of 45 days or more, the first week or two are the most dangerous to your position; adverse market moves in those early days can push you out of the trade pretty easily. In about 10 days or so, we will begin to look at closing down this Dec condor position.
See you tomorrow.
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Credit problems in Dubai sent Asian and European markets tumbling yesterday while we were having turkey with our families. Our markets gapped down at the open today, recovered a little bit and traded sideways for the balance of a shortened trading day. The big question on everyone's mind: will the markets continue down Monday or will today's drop be considered an over reaction? Either the problems in Dubai will be considered more isolated and the market will recover or analysts will see Dubai's problems as precursors to broader global credit issues and the market may correct even further. RUT dropped almost $15 to close at $577 while the SPX lost $19 to close at $1091.
My Dec iron condor on RUT stands at +$730, delta = -$10 and theta = +$137. This market pullback has brought the index almost equidistant between the short strikes. My RUT Jan iron condor stands at +$80, delta = +$11 and theta = +$64. Now we wait for Monday's response. Are your stop losses in place?
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The markets opened up weak this morning and spent most of the day slowly making up ground, ending the day essentially unchanged. The Nov Consumer Confidence Index came in greater than expected and was higher than October as well, but that didn't have much effect on the market. The release of the FOMC minutes from the last meeting did not generate much response either. In general, the market seemed to be on vacation in advance of the holiday. RUT closed down $2 at $593 while the SPX was essentially unchanged at $1106.
I initiated my Jan iron condor today by selling 20 contracts of RUT call spreads at $650/$660 for $1.07 and selling 20 contracts of RUT put spreads at $510/$520 for $1.10. Plus and minus one standard deviation was $532 to $646 and I gave myself a little more safety margin on the bottom side. We brought in a total credit of $4,340 and have $15,660 at risk. I placed my contingency stop loss order to trigger at values of RUT < $543. At the close of trading today, this position stood at a P/L of -$160, delta = -$33 and theta = +$79. My Dec RUT iron condor stands at a P/L of +$530, delta = -$79 and theta = +$123. In some ways, this type of slow choppy market is boring, but it is wonderful for income generation options traders.
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A surprisingly positive report of new home sales for October plus a 52 week low for the dollar kept the markets in positive territory today, but just barely. The low volume of trading typical preceding a holiday continued today and will likely also characterize Friday's short trading session (trading will close at 1:00 pm ET). The RUT traded mostly sideways today and closed essentially unchanged at $592, while the SPX made a modest $5 gain to close at $1111, just shy of its record $1113 for 2009.
My Dec iron condor now stands at a P/L of +$630, delta = -$84 and theta = +$122. The put spreads are now over two standard deviations OTM and the calls are right at one standard deviation OTM. The Jan iron condor on RUT stands at a P/L of -$100, delta = -$32 and theta = +$81. Holiday weeks are wonderful for income generation traders.
I wish each of you a wonderful Thanksgiving with your families. We have much to be thankful for.
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The S&P futures signaled a strong open early this morning, based on a weaker dollar and bullish trading in the Asian and European markets. Stocks broadly rose at the open and the strong start was further fueled by a surprisingly strong existing home sales report; Oct sales jumped 10.1% to 6.1 million sales (5.7 million were expected). But shortly after that report, the market softened and traded slowly downward the rest of the day, but strong gains were retained. RUT closed at $595, up over $10 and the SPX closed up almost $15 at $1106.
My Dec iron condor on RUT now stands at a P/L of -$110, delta = -$85 and theta = +$139. The theta/delta ratio is weakening, now below 2:1. My short $630 calls are standing at a delta of 16, well below where I would pull the trigger on an adjustment. In addition, there are many technical signs that this market is overbought, plus trading during this holiday week isn't likely to move strongly in either direction. So I am not inclined to worry about this position at this point. Market trading volume was below average today and will likely diminish as the week progresses. I will be looking to establish my January iron condor tomorrow to take advantage of the holiday.
