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Trading started in positive territory this morning, but within an hour, it had turned negative. The Russell 2000 Index (RUT) traded downward most of the day and recovered some during the last hour of trading but closed down at $587, just above the support level broken yesterday. The S&P 500 (SPX) also traded up initially and then downward all day. But the SPX regained all of its losses in the last hour to close virtually unchanged at $1093, just below the strong resistance at $1100.
My Dec iron condor was helped somewhat by the modest pullback on RUT to close with a P/L of -$10, delta = -$13 and theta = +$77. I still need the protection of the Jan $630 calls since my Dec $630 calls still have a delta of 20. It may prove difficult for SPX to break $1100 and RUT to break the resistance at $625 set with the double top in September and October. The markets may well trade in this range for a while. But this market has been proving everyone wrong of late, so be sure your contingency orders are in place.
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News that the G-20 and Treasury Secretary Gaithner believe economic stimulus should be continued sent the dollar down and gold and stocks up today. Today's strong run upward stood in sharp contrast to the doldrums in the markets Friday. RUT ran nearly $12 to close at $592 while the SPX closed at $1093, up almost $24. RUT convincingly broke through resistance at $585 while the SPX is nearly at the $1100 level it could not break through a few weeks ago. Trading volume was up across the board, so today's move appears to be a convincing end to the correction that began in mid October.
My contingency orders kicked in early this morning to purchase two Jan $630 calls at $11.00. Before that adjustment, my Dec condor stood at a P/L of -$460, delta = -$76 and theta = + $112. At the close, the position was at -$250, delta = -$17 and theta = +$75. The adjustment protected the overall position P/L and cut delta way back, while not sacrificing too much theta. The theta/delta ratio is actually stronger after the adjustment. Now we wait to see if SPX can break $1100 - that would be very bullish.
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CSCO's strong earnings report appeared to energize the market and it opened strong this morning but the surprise (to me at least) was that it continued its steady upward march all day long. I expected some traders to take profits toward the end of the session, given the upcoming unemployment report in the morning, but everyone appears confident that unemployment will rise only a little to 9.9% and that is apparently considered further confirmation that the worst is behind us. RUT ran up $18 to close at $581 while the SPX closed at $1067, up a little over $20. RUT is just entering a resistance level at about $580 to $585 while the SPX will be running into resistance at about $1070. If they break those levels tomorrow, then this correction may be over; if you look at the peak to trough move on the SPX, it was about 6%. Most market technicians would expect a move of about 10% for the normal correction...
My Dec $510 puts are out of the woods for now with a delta at 15. However, I may regret aggressively having rolled my call spreads down to 630/640 on Monday. The $630 strike feels a little too close after today's $18 run upward. A few days makes a big difference in this volatile market. My Dec RUT iron condor now stands at -$560, delta = -$43, and theta = +$104. Tomorrow should be interesting...
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The unemployment report of 10.2% was greater than the 9.9% expected and caused a minor pullback in the markets at the open, but buyers quickly pulled it back up. Although the market basically traded sideways all day, I think this shows considerable buying strength for this market. RUT closed essentially unchanged at $580 and the SPX closed up about $3 at $1069.
My Dec iron condor on RUT now stands at a P/L of -$100, a position delta of -$42 and a position theta of +$103 - solid greeks with theta/delta > 2:1. When the market turned bullish early this morning, I entered a contingency order to buy protective Jan $630 calls if RUT broke through resistance at $580-$585 (I set the trigger at $587). Because of my aggressive rolling down of the call spreads early this week, I now have a fairly aggressive iron condor position at $500/$510 and $630/$640. We still have a lot of time left in this trade at 41 days. Stay tuned.
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Today's markets spent most of the day in slightly positive territory, became rather choppy after the FOMC announcement, and then sold off in the last 30 minutes. The FOMC basically gave the expected announcement, i.e., that interest rates will remain low for "an extended period" to stimulate the economy. That seemed pretty positive to me, but it apparently stimulated some significant volatility in the afternoon trading.
RUT closed down about $7 to $563 while the SPX closed in positive territory at $1047. I decided to sell the Jan $510 puts hedging my Dec put spreads at $12.20 this morning, resulting in a $100 loss. The late afternoon sell-off has my short put spreads back in a dangerous area, so I will be watchful until this market trades back up a bit or at least treads water for a few days. The Greeks of the Dec iron condor are pretty strong at a position delta of -$6 and position theta
of +$99.
The "earnings season" thus far does not seem to be giving the market participants much comfort. So we may trade in this basically choppy, sideways to slightly downward fashion for a while. But who really knows? That is why you must have a system and follow your rules.
