- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2890
Weakness in the financial stocks was triggered by CIT's announcement
that it is delaying its quarterly filing. The selling spread across the
board, but significant support levels were held; the SPX closed at $994
and RUT closed at $562. A common explanation among the talking heads
was that the market was waiting on the FOMC announcement tomorrow
afternoon. I am more inclined to see this as a needed breather from the
incredible rally over the past several weeks. Trading has remained in a
reasonably tight range over the past few sessions and even on down days
like today, no heavy broad based selling has broken out. That tells me
that the large institutional players may be taking some very selective
profits, but, in general, are not selling. Of course, the wrong
comments from the Feds tomorrow could change that situation very
quickly.
This pullback to $562 today removed some of the pressure on my August
condor; the position P/L improved to -$1,640 with delta = -$51 and
theta = +$172. My short 590 calls are now more than one standard
deviation OTM with nine days remaining.
I had my doubts about initiating my Sept iron condor today with the
FOMC meeting in progress. So I compromised and established 10 contracts
of the 620/630 calls for $1.00 and 10 contracts of the 500/510 put
spreads for $1.30 for a total credit of $2,300. I intend to add 10 more
contracts after the announcement tomorrow or later this week. This
position has a delta = -$4 and theta = +$55 with 37 days to expiration.
I positioned the short strikes just outside of one standard deviation.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2807
It was a boring day in the markets. Less than one billion shares traded on the NYSE - the lowest number in two weeks. Given the huge run since the first week of July, the market is due for a breather, so the trading range of the last few sessions isn't too surprising. The RUT index closed essentially unchanged at $571.87. RUT has closed at about $570 in three of the last four sessions. Today's doji candlestick is further evidence of the market's indecision.
My August iron condor remains in limbo with a position P/L of -$2,380, delta = -$92 and theta = +$125. Notice how theta is beginning to accelerate in these last few days before expiration. The delta of my short $590 calls is 26 and one standard deviation on the RUT is $27. So my short calls are just over one standard deviation OTM. The 590/600 spread was established for a credit of $1.10 and the ask price to close it is $2.10. By all measures, this position is just on the edge of being closed out or moving into safer territory.
I intended to establish some Sept condors today, but I had an unusually busy schedule in the office and wasn't able to carve out sufficient time to look at the possibilities. There is a lesson here - always remember that waiting or choosing not to trade is rarely a bad decision. Rushing to judgment can lead to trouble in this business. Always take the time necessary to follow your system. Sometimes students hear an instructor say he or she always puts on the iron condor at 49 days (or whatever number), and the student takes this as an absolute dictum that rules out 50 days or 45 days. Those are guidelines; don't treat them as absolute rules that may force you into a trade without following all of your procedures.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2892
The markets opened up strong this morning in spite of lackluster employment data, but the bears took control and drove the SPX back under the key $1000 support level. RUT closed at $557.62, near its support level at $551. But the market averages are still up for the week, so this is nothing more than a healthy slow down after a strong run (so far).
This pullback in RUT helped my Aug iron condor at a P/L of -$1,870, delta = -$38, and theta = +$116. Theta/delta is at a healthy 3:1 ratio, and the P/L is moderating. My short $590 calls now stand about one standard deviation OTM. A little more pullback in RUT will tempt me to add some 590/600 call spreads to try to squeeze a profit out of this crazy month; but that will increase my price risk and we only have two weeks left.
Let's talk about hindsight in trading for a moment. The pullback of the last two days has been enough to have brought my Aug iron butterfly back into the range of profitability if it were still open. Looking back at closed trades and thinking about how much money I could have made is not healthy for my trading. However, reviewing old trades with the objective of improving one's trading is very beneficial. I keep a trading journal and review my trades at the end of each month. I categorize the trades that lost money into two camps: 1) Bad Trades, and 2) Losing Trades. If I broke one or more of my trading rules, that was a Bad Trade; if I followed my rules but still lost money, that is simply a losing trade - it is part of the overhead of the trading business. I will always have losing trades; the key is to minimize those losses. Spending time each month reviewing your closed trades will make you a better trader.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2885
Broad market gains characterized today's trading. The jobs
report this morning wasn't stellar, but the traders appear to have concluded
that the worst of the economic problems are behind us; thus all news is being
given favorable interpretation, supporting the thesis that we have hit bottom and good times are ahead. But don't get complacent - that can change in a
flash.
The RUT closed at $572.40, up over $14. Of course, this large upward
move pushed my wounded Aug iron condor back into a precarious situation with
the position P/L up to -$2,410, delta = -$86 and theta = +$96. Time remaining
is down to two weeks, and normally I would be more comfortable with a $20 gap
to my short strikes at this point. But this market can cover that distance in a morning! So I
will be watching this position closely.
I had planned to put on my Sept iron condors today, but I had a full day and had to defer that to Monday.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2680
The markets generally traded lower today, with the exception of the financial stocks. But significant support levels such as the SPX's $1000 level held up, so the market uptrend is still a force to be reckoned with. While bears tried to drive the averages down today, they couldn't hold the lows of the day and that shows the strength of the bullish case for this market. Given that the ADP payroll report and other economic news today was weak to outright negative, this support is significant.
The RUT closed down at $565.99. The delta of my short $590 calls in my August iron condor dipped down to 19 today, so I sold my Sept $530 call for $40.80, a $3,120 gain (my insurance). Thus, my condor position now stands at a P/L of -$2,590, delta = -$57, and theta = +$139. Time to expiration is diminishing (now 15 days), and that helps dilute the effect of additional moves against my position. But my 590/600 call spreads remain in a precarious situation. I cannot tolerate much of an upward move in RUT. At this point, my condor is a loser; I just have not confirmed the amount of that loss. My condor is unbalanced at this point with ten 590/600 call spreads and twenty 480/490 put spreads. I considered selling ten 610/620 call spreads today, but the credits were too small (ca. $0.40). I then considered additional 590/600 spreads but the resulting position delta would be around -$138 with about +$210 theta - nice bump in theta, but too much price risk. That addition would have restored the possibility of a net gain for this condor position, but I decided the risk wasn't justified. My dad was a serious poker player and he often said, "don't throw good money after bad", meaning don't add money to the pot after your probabilities of success have dropped.
