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Sorry I am late with the blog. After I adjusted my positions this afternoon, I replaced the brakes on one of the cars and it took longer than I expected - a common characteristic of my home projects. Yesterday's market weakness spilled over into today; there were several economic reports, but nothing really dreadful. Many observers of the market are speculating that people are taking money off the table in anticipation of tomorrow's unemployment report. We'll see. One thing's for sure - it will be a volatile day.
RUT closed down over $20 at $584 and SPX dropped to $1030. Note how both indexes held up right at the support level set in late August. If they break that support level tomorrow, SPX could challenge the $1000 level and RUT's next support is around $575 and then $550.
About 12:30 this afternoon, I decided to adjust my Oct condor, partly because of today's downward move and partly in preparation for tomorrow. Before the adjustment, the position's delta stood at +$47 and theta was +$116. That wasn't too bad, but I decided to cut those deltas just in case this market gets ugly. I bought one Nov $520 put for $21.60. I chose that strike for the larger delta impact. At the close, delta = +$14 and theta = +$88. The Nov condor stands at a P/L of +$20, delta = +$19 and theta = +65. Tomorrow should be interesting.
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An old friend of mine used to say, "he's as nervous as a long tailed cat in a room full of rockers". That describes the current market climate pretty well. Before the market opened this morning the S&P futures were pointing to a positive opening, based on some positive earnings announcements and the upward revision of the second quarter GDP. And the market did open and trade up, but it didn't last long. The Chicago Purchasing Managers Index (PMI) for Sept was released a few minutes after the market opened and stocks plummeted. The ADP payroll data showing the loss of 245k jobs in September didn't help - and this sets up anticipation for the jobs report Friday. It is hard to predict the direction, but a volatile reaction to the Friday jobs reports appears likely.
I don't know if many of you follow candlesticks as a technical indicator. I am not a "true believer" but I do think the interpretation of the basic candlestick pattern does have some merit. For example, today's candlestick on RUT and SPX wasn't quite what they call a "hanging man" - the tail was not nearly long enough. But think about what that pattern tells us about the "tug of war" in the marketplace. The bulls had control for a few minutes this morning and drove the prices up, but quickly were overrun by the bears and they took it down near the lows of last week. But then the bulls reasserted themselves and pulled it back and erased much of the loss before the day ended. My conclusions are: 1) the bulls remain the dominant force in this market; they have repeatedly come in the market late in the day and pulled this market back up. But 2) there are a lot of nervous traders in the market that are ready to turn bearish in a split second. So we have a bullish trend, but it is hard to predict what might cause a panic run to the exits that the bulls will be unable to contain.
My limping Oct condor is doing well, or at least as well as one can expect with a P/L of -$605, delta = +$11, and theta = +$112. I didn't point it out earlier, but when I rolled the calls and puts of this condor upward, I could have increased the size of the position and salvaged more profit; but that would have increased the risk of this position, and I am trying to show how a conservative trader can manage these iron condors. If the market continues trading sideways, this position will break into the black early next week, but I will have a minimal profit for October, if I salvage a profit at all. The Nov condor is faring well with a P/L of -$40, delta = -$25 and theta = +$78. Hang on for the ride...
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The markets traded up strongly this morning and then held pretty steady throughout the day. Financials and technology led the charge early and the financials ended the day up over 2.8%. However, trading volume was low due to Yom Kippur. Tomorrow brings the potential for higher trading volume, the consumer confidence report and the housing price index data. We'll see if that data dampens any of the merger euphoria that drove today's markets. A strong day like today on greater than average trading volume would be very bullish.
RUT closed at $613 and the SPX closed at $1063. My Oct condor stands at -$870, delta = -$23 and theta = +$129. The short $660 calls are now well outside of one standard deviation at $651. That is comforting but these feelings of confidence can be fleeting. My Nov condor stands at a P/L of -$240, delta = -$40 and theta = +$77. The delta of the $680 call is up to 14, nearing our adjustment zone. So for now, we just watch and wait.
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The market opened strongly this morning, buoyed by a better than expected home price report, but 10 am brought a disappointing consumer confidence report and that threw cold water on the trading for the balance of the day. However, the good news is that the market found support rather easily and didn't give up any significant losses. So the underlying bullish trend appears intact. RUT closed down about $3 to $610 and the SPX closed down about $2 to close at $1061.
This sideways market action is great for my iron condors and they are almost unchanged from yesterday: my Oct condor stands at a P/L of -$680, delta = -$19 and theta = +$125; both short options are greater than one standard deviation OTM. The Nov condor stands at a P/L of -$140, delta = -$43 and theta = +$78. The short $680 call now stands just inside one standard deviation with a delta of 13. This trade still has 51 days until expiration so we cannot tolerate much of an upward move in RUT over the next week, or we will have to adjust our call spread position.
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Today was another dismal day in the markets, but the losses were relatively minor. RUT closed at $599, down about $3; SPX closed at $1044, down about $6. RUT was down as far as $596 before afternoon buying pared some of the losses. Let's consider RUT as we look at the "correction or consolidation" question (the same analysis holds for the S&P 500). If RUT were to drop back to its closest support level at about $585, that would represent a 6% drop from recent highs. Most market observers would say a 10% drop constitutes a correction. Of course, this isn't a science - maybe 6% will constitute the correction this time. But the conclusion is clear: so far, we have some minor consolidation going on, nothing too alarming. Next week is loaded with economic reports: consumer confidence, ADP payroll, final Q2 GDP, Chicago PMI, etc. Assuming no huge surprises in any of those reports, we will probably just muddle along here for a while.
My Oct condor now stands at P/L of -$1,100, delta = +$20 and theta = +102 (great theta/delta ratio, but unfortunately, this trade is badly wounded as it limps home). Our Nov condor is barely out of the gate but is in good shape so far with P/L of +$20, delta = -$13, and theta = +$68. The trades I publish here in my blog are in one $50k account, and it is worth noting that you can also manage a larger account containing several trades with the Greeks just as we have with these individual condors. This overall account stands at a P/L of -$685, delta = +$17, and theta = +$147. So we come to the same conclusion either way we look at the trades - everything is fine; no adjustments are necessary. We are just watching the time decay.
