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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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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.
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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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Several favorable economic reports this morning failed to impress traders and the market slid in low volume trading. But buyers came in to push the market back up and in most cases had turned the red ink into positive gains by market closing. The DJIA closed at $9581; SPX closed up by $3 at $1031 and RUT closed essentially unchanged at $583.77. The RUT chart has been trading sideways between $572 and $588 for the past four or five sessions. The question on everyone's mind is whether it will suddenly break out up or down, or just trade sideways to consolidate for a while.
I had begun to take off my long call hedges yesterday, and during the market's weakness this morning, I removed the balance of the hedges from both my Sept and my Oct condors. This morning, the deltas of my short Sept $620 calls had dropped to 11 and the short Oct $640 calls had dropped to 15. I sold the Oct $620 calls at $7.50 and the Nov $640 calls at $8.90. As the market rebounded, the deltas of the short Sept $620 calls and the short Oct $640 calls had increased to 14 and 16, respectively.
My Sept condor now stands at a P/L of +$130, delta = -$151, and theta = +$210. This is a higher delta than I would like; I may end up buying long calls again to hedge this position. This volatile market has a way of jerking these positions around. At this point, I have spent a total of $911 on both put and call hedges for this condor, but a potential gain of $3,800 remains.
My Oct condor now stands at a P/L of -$650, delta = -$52, and theta = +$60. Removing the Nov call today cost me $200 (my insurance premium). Aggressively hedging my iron condors does reduce my potential gains, but protecting my downside on these positions is crucial to long term success.
