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The markets traded erratically all day but decidedly more negative as the day worn on. The RUT closed down over $7 at $587, right at the support level set in late August; the next support level is at $576, set on Oct. 2. The RUT chart is a classic double top pattern that will signal a reversal of the up trend if RUT breaks $576 with strong volume. SPX closed down about $4 to $1063. The one piece of calming data is that the past several days of losses in the markets have occurred at average to below average trading volumes.
My Nov iron condor on RUT stands at a P/L of +$2,060, delta = +$49 and theta = +$80. The position theta/delta ratio has dipped below 2:1, and the delta of my short $530 put has risen to 12. My put spreads are at breakeven or slightly underwater (although I already banked $500 from rolling the original put spreads upward). I will be closing these put spreads if the RUT deteriorates any further.
I established my Dec RUT iron condors today with 20 contracts of the $500/$510 puts at a credit of $0.95 and 20 contracts of the $660/$670 calls at a credit of $0.95, for a total position credit of $3,800 on $16,200 at risk. I positioned this condor slightly bearish at a delta of -$15 and theta = +$81. So now we watch to see if the negative trend of the past few sessions levels out or accelerates into a full blown correction.
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The volatility of this market can be a bit unnerving. It looked like we were in for a moderate sideways to up day this morning, which was reassuring after Friday's strong push downward. But just after 11 am ET, the bottom fell out and the rest of the day was in negative territory. The Russell 2000 Index (RUT) closed down over $7 at $594, just above support at $588-$590. The S&P 500 (SPX) closed down over $12 at $1067. The SPX broke through its support level at $1075. The next support level is at $1025-$1030. I am not suggesting anyone panic, but you definitely need to be sure you have contingent stop loss orders in place for all of your trades - this is a very volatile, and consequently, a dangerous market. You most likely will be whip sawed out of many trades, but that beats the alternative.
Some of us trade as though we were still in the era of full service brokers and high trading commissions. In that setting, we avoided trading in and out of positions because it eroded our gains quickly. Today's environment of online trading and discount brokers makes it very feasible to be stopped out of trades, reconsider the situation the next day, and re-establish the position with minimal cost.
My Nov iron condor on RUT stands at a P/L of +$2,340, position delta = +$33, and position theta = +$79.
Do you enjoy the thrill of the roller coaster? Follow your system and be diligent with your risk management and you will take much of the emotion out of this roller coaster ride.
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The markets opened in negative territory this morning and momentarily looked as though yesterday's shooting star candlestick was indeed an indicator of a trend reversal. But the indexes dropped, hit support, and started a steady climb upward that accelerated for the last two hours of trading to end the day with all of the stock indexes up across the board. RUT ran up $8 to close at $613 while the SPX closed at $1093, an increase of about $12.
My Nov iron condor on RUT now stands at a P/L of +$2,460, position delta of -$8 and position theta of +$84. My put spreads are now about two standard deviations OTM and the call spreads are about 1.5 standard deviations OTM. The iron condor spread is my "bread and butter" trade and my trading record now stands as:
June: +$4,600 or 29%
July: +$1,400 or 10%
August: -$810 or -5%
September: +$1,630 or 6%
October: +$715 or 6%
November: +$2,460 or 15% (still open)
Given the severe market volatility of the past several months, I am particularly pleased with this track record. Iron condors are easy trades during slowly trending or sideways markets, but 2008 and 2009 have been extremely challenging for all delta neutral traders. If you can successfully trade iron condors in this environment, I would dare say you could trade them anytime.
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I was impressed with yesterday's strong bounce off of support and am also impressed with today's move right back down to those support levels. The markets opened up this morning and basically trended downward all day. Both the RUT and the SPX closed at or just above their support levels. RUT closed at $601 and SPX closed at $1080. Today's candlestick patterns are the classic bearish engulfing pattern or what is known as an outside day in the bar chart world. So after the market looked pretty solid yesterday after strongly bouncing off support, now it has driven strongly right back down to support. The key to watch for on Monday is definite break of these support levels.
My Nov iron condor is still in good shape with a P/L of +$2,600, delta = +$12 and theta = +$69. Hopefully, the consolidation of the past several sessions will continue and we can just sit and watch the time decay. But today's strong down move certainly has my attention.
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The markets traded up and then basically sideways throughout the day and then did an abrupt about face with about one hour left in trading. It is hard to say what triggered the sell-off. Some suggested it was the downgrade of Wells Fargo that started all of the financials trading downward; some suggested the dollar hitting new lows was starting to worry some traders. The RUT dropped $8 to close at $605, just above support at $600. Similarly, the SPX dropped about $10 to close at $1081, just above its support at about $1080. Both of the SPX and RUT charts displayed a shooting star candlestick pattern today, often suggesting an imminent reversal of an up trend. In this case, we would want to see the SPX and RUT solidly break their support levels tomorrow to confirm that reversal.
My Nov iron condor is almost exactly delta neutral with a P/L of +$1,780, delta = +$2, and theta = +$108. Watch the market tomorrow morning carefully. I trust you have your contingent stop orders all in place??
