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The markets were in negative territory almost all day. Many expected the good earnings announcements, led by Apple, to lead the market higher, but that didn't prove to be true. My view is that the earnings announcements have generally been considered as good or exceeding expectations based on profit growth rather than revenue growth (Apple was a notable exception). Companies have aggressively laid off workers and cut costs, resulting in gains in profitability, but those gains are temporary. When you couple this realization with some profit taking after an exceptional run upward for the past few months, some sideways consolidation is the best we can expect. But this presents a much more favorable market for our delta neutral trades.
RUT closed down about $9 to $613 while the SPX dropped $7 to $1091. The RUT is struggling to break through $625 while the SPX can't break $1100. My Nov RUT iron condor (20 contracts of the 520/530 puts and 680/690 calls) stands at a P/L of +$2,220, position delta = -$15 and theta = +$89. Perhaps Nov will be a nice boring month for us condor traders - it's about time! However, I still think there is a good chance of some unexpected economic data scaring this market, so keep your contingent stop loss order in place to close your put spreads in case of a sudden drop.
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The bull market is still intact, in spite of all of us doubting Thomases. The Russell 2000 Index (RUT) closed up about $6 to $622 while the S&P500 Index (SPX) closed up about $10 at $1098. RUT had a strong run upward this morning, but it stalled at the resistance level set earlier this year at $625. RUT has been trading just below $625 for four sessions now; it is looking for some news sufficient to break through $625. SPX broke through its resistance a few days ago and now appears to be struggling with the $1100 mark; for three sessions, it has bounced off of that level; today it broke above by a thin dime just for a couple of minutes.
As I am writing this blog, AAPL has not yet announced its earnings, but the weak price moves on AAPL Friday and then again this morning caused me some concern so I closed my AAPL double calendar for a loss of $850. My Nov iron condor stands at a P/L of +$1900, delta = -$36 and theta = +95. I will begin to look for opportunities to position my Dec condors within the next week to ten days.
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Trading was choppy and generally negative today; late trading this
afternoon erased much of the losses. RUT closed essentially unchanged
at $623 and the SPX edged up to $1097. Today was the last day to trade
the Oct RUT index options, but my Oct condor spreads remain > 2 standard deviations OTM so I allowed those positions to remain open into expiration. The Oct iron condor position will close at a $715 gain or a 6% gain on capital at risk. My Aug and Oct condors are excellent examples of the feasibility of using iron condors for monthly income generation. My Aug position lost $810 and the Oct position gained only $715 but the lesson is risk management. If you can salvage a small loss or even a small gain in the months where the market trends strongly against you, then this trading strategy can work for you.
My Nov iron condor stands at a P/L of +$1,700, position delta = -$29, and position theta = +$81.
I dabbled in a couple of speculative earnings announcement trades today - I normally emphasize conservative options trading strategies, but a little bit of speculation is OK (typically 5-10% or less of your portfolio). AAPL's earnings will be announced Monday and I established a Nov/Jan 180/200 double calendar today for $8,750 (10 contracts). Due to the earnings announcement, IV of the Nov AAPL options is elevated. I am predicting that IV of the Nov options will decrease rapidly early next week while the IV of the Jan options should remain about the same. This should give this position a nice head start. Of course, I also need AAPL to not trade up or down too far. The breakevens of this trade are at $174 and $209.
The other speculative trade was on GOOG's earnings announcement after the market closed today. I put on 10 contracts of an ATM Oct/Nov $530 calendar for $10,010 with breakevens of $504 and $560. GOOG is currently trading in after hours markets at about $540 so this trade appears to be working out just fine. Similar to the AAPL trade, this position benefits from the collapsing IV in the Oct call after the announcement. However, it is also predicated on GOOG staying within $504 and $560.
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BAC's and GE's earnings announcements seemed to set a sour mood for the markets today, with losses through most of the day, although some of the losses were erased in afternoon trading. The SPX closed down at $1088 and RUT closed down about $7 at $616. RUT closed at an intermediate support level at about $615. If market weakness continues Monday, the next support level is at around $600. The settlement value for RUT has not yet been posted, but RUT traded in the range of $612 to $619 in the first hour, so that is the ballpark for the October settlement value.
All of the options expired worthless in my RUT Oct 540/550 and 660/670 iron condor for a net gain of $715, or 6%.
The RUT Nov 520/530 and 680/690 iron condor stands at a P/L of +$1,960, delta = -$22, and theta = +83.
I closed my GOOG Oct/Nov $530 calendar this morning during the first few minutes of trading for $11.10, for a gain of $1,090 or 11%. The extreme IV of the Oct $530 calls disappeared instantaneously, but the IV decreased more slowly in the Nov calls, enabling my profitable exit. Actually, I was surprised at how much IV bled out of the Nov calls during the day; they went from about 35% to 23% . In contrast, the Oct $530 calls were at 99% yesterday. I didn't expect the IV of the Nov calls to be so pumped up for an earnings announcement in October.
The AAPL Nov/Jan 180/200 double calendar is essentially unchanged at a P/L of -$200, delta = +$48 and theta = +$85. However, watching the significant IV decrease in GOOG's Nov calls has me concerned about this trade. Weakness in AAPL's price today is also concerning. I may close this trade Monday if AAPL continues to look weak.
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The markets were pretty strong today, breaking several resistance levels. The Dow closed above $10,000 for the first time in over a year. I don't normally follow the Dow simply because it is a very narrow measure of the market with only 30 stocks. I believe the S&P 500 is a better overall measure of the market's action. SPX closed at $1092, solidly breaking through the previous high for this year of $1080, set on Sept. 23. RUT closed at $624, just shy of its high for the year of $625. It seems to me that these gains are too much, too soon, given the overall weakness of this economy. So I have tightened up the protective stop loss orders on all of my positions. A series of poor earnings reports from some of the big players scheduled this week could start that run for the exits. GOOG, IBM, and GS report tomorrow evening; GE and BAC report Friday. But, for now, one must respect that we are playing a bullish market trend and trade accordingly.
My Oct RUT iron condor is almost done with a P/L of +$670, delta = +$3, and theta = +$143. If tomorrow brings an exceptionally strong up day, I will buy back the 660 calls before the close. Today's run upward brought those calls just to the edge of two standard deviations OTM. The Nov RUT iron condor sits at a P/L of +$800, with a position delta of -$54 and theta = +$107. In the meantime, earnings season is in full swing.
