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The markets opened and traded down early today and then spent most of the day trading choppily and mostly sideways. But the bulls came to the floor in the last hour and pushed all of the major indexes higher. The Russell 2000 Index traded as low as $552 in the morning and closed at its high for the day, $562.49. The Standard and Poors 500 (SPX) traded in a similar pattern and closed within a quarter of its high for the day at $1003.24. Gold closed at a six month high of $998.
Early in the day, the talking heads attributed the sideways trading to the market waiting for the unemployment numbers tomorrow morning. If that was true, someone must have decided those numbers are going to look better than expected, given the strength of the buying late in the day. The patterns of trading this week seem to suggest a fundamentally sound market and just some healthy consolidation occurring. However, I think most market players are still a little on edge from the extreme volatility of the past year. So some surprise, like a big jump in the unemployment number tomorrow, might push this market off the cliff. However, in the absence of that panic scenario, my iron condors will continue to generate profit as we consolidate sideways. My condors are in excellent shape with the Sept position at a P/L of +$2,290, delta = +$7 and theta = +$191. The Oct condor closed at a P/L of +$160, delta = -$14 and theta = +$66. So now we watch for the unemployment number and, barring no surprises, we enjoy a long weekend of time decay.
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The markets didn't do much of anything today. RUT closed down a couple of dollars to $556 - still holding at support around $550. The SPX closed down $3 to $995, still in its support area; look at the SPX chart for Aug 4-14 and see how it held in the range of $992 to $1012 for several days; that is the support level I'm watching. A strong breakout at higher volume below $990 would be of concern; otherwise, this market is just consolidating after a huge rally. And we may be seeing a bit of a slowdown before the holiday weekend.
My condors are loving this consolidation - delta stays neutral while positive time decay works in my favor. The Sept condor stands at a P/L of +$1920, delta = +$32, and theta = +$185, while the Oct position stands at a P/L of +$70, delta = -$9, and theta = +$63.
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Significant drops overnight in the Asian markets caused concern for traders here and those concerns even affected the commodities markets, with oil trading below $70 and gold trading down to $954. Some strengthening occurred late in the day that pared losses, so the market appears to have an underlying strength. Trading volume was up somewhat, but still at low values historically. RUT closed down over $7 to $572.
My Sept iron condor now stands at a P/L of +$2100, delta = -$30 and theta = +$165. The Oct iron condor stands at a P/L of +$70, delta = -$29 and theta = +$59. All of my short strikes are more than 1.5 standard deviations OTM at this point. But, as we have seen repeatedly in this market, all of that can change pretty quickly.
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An old Wall Street saying is to "buy the rumor and sell the news". This morning's market saw favorable reports for the ISM Manufacturing Index, July construction spending, and pending home sales for July. But the market's favorable reaction didn't last long; by mid morning, all of the indexes were falling significantly. The rationale was that all of this good economic news was priced into the market in the recent rally, so profit taking ensued. The SPX closed at $998, near its long term support level of $1000, and RUT closed at $558, just above its $550 support level.
The downward moves of the past few days have been helpful for my iron condors. The Sept condor stands at a P/L of +$1,690, delta = +$17, and theta = +$199. So we are very close to delta neutral with theta decay generating about $200 per day. The Oct condor still has 44 days left in it and this market has left the RUT near the midpoint of this condor; normally, I would be looking to roll up or down one side or the other and take some profits here, but the increased IV has prevented that so far. Currently, the Oct condor stands at a P/L of +$70, delta = -$5, and theta = +$59. As long as the market doesn't "fall off the cliff", we will do nothing with these positions.
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Favorable earnings announcements and outlooks from Intel and Dell boosted the markets this morning, but the sellers came out of the woodwork and took their profits, driving the market down for most of the day. RUT closed down at $580 and the SPX closed down at $1029. It appears this market senses that all of the good news has already been priced into stocks and is prepared to take profits on any rally. However, the trading volume has been low, so drawing conclusions from the price movements this week may be dangerous. Perhaps the rally resumes after Labor Day when everyone returns to the floor.
This pullback has been a welcome relief for my condor positions. My Sept iron condor now stands at a profit of $1040, delta = -$103 and a theta of +$200. The short $620 calls are back to about one standard deviation OTM. The Oct iron condor now stands at a P/L of -$230, delta = -$39 and theta = +$57. Although the $460/$470 put spreads are now about two standard deviations OTM, I will resist the temptation to roll them up. That downside cushion is welcome as the market consolidates at the current levels.
