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This was a slow week for the major market averages. SPX basically traded at $1460 all week. Today, SPX ran as high as $1467 before being pulled back to close unchanged at $1460. RUT closed unchanged at $856. Trading volume popped up on this expiration Friday with 3.5 billion shares of the S&P 500 trading. Trading volume on the NYSE increased 90% and trading on the NASDAQ increased 29%. VIX remains pretty low at 14%.
My September iron condor on RUT ends this weekend with the expiration of the 790/800 put spreads. That position ended up with a loss of $4,680 or 27%. This pulls our year to date record for the Flying With The Condor™ back to +30%, still an excellent record as compared with a gain of 16% for the S&P 500. The Oct condor stands at a P/L of -$920 with delta = -$24 and theta = +$113.
Enjoy your weekend.
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The markets are hanging in there at these relatively elevated levels. SPX closed at $1461, up $2 and RUT dropped $1 to close at $856. As I was looking over the SPX chart a few minutes ago, it struck me how much of a step-wise pattern SPX has traded in for the past six weeks or so. SPX managed to break $1400 in early August but then just traded sideways until early September when Draghi's press conference comments propelled SPX to about $1435. But then we trade sideways until Bernanke, not to be outdone by Draghi, gives the market a boost and sends it to $1460. And here we are, almost a week later, trading sideways at about $1460. What does that tell us? I think it shows the remarkable support behind this market. Have we solved the European debt crisis? Has the economic recovery in the states started to accelerate? Has unemployment started returning to "normal" levels? Has the dreaded and much talked about fiscal cliff problem been solved? In spite of all of those rather significant economic "issues", the market's rally is intact (in my corporate career, we were always counseled to cast "problems" as "issues" in our management discussions). This bull market is not to be denied. Consistent with that view, the VIX dropped again today to 13.9%.
Trading volume rose slightly with 2.6 billion shares of the S&P 500 trading (the 50 dma = 2.5B); trading on the NYSE rose 1% and volume on NASDAQ rose 9%.
We had another dose of mediocre economic data today. Housing starts for August came in at 750k, up a bit from the previous month's 733k. Building permits dropped form 811k to 803k, but existing home sales rose from 4.47M to 4.82M.
My October iron condor position stands at a P/L of -$1,480 with position delta = -$27 and position theta = +$119. The 900/910 calls and the 790/800 puts are both about one standard deviation or more OTM with thirty days to go to expiration.
In the "interesting observations" column, I have entered a wide OTM butterfly spread on AAPL each summer for the past several years using January LEAPS options. Each year, AAPL has run too far, too fast and I have been forced to close the spread early - a nice gain, but not the great gain planned if we had made it to January. So this year, I entered the 670/750/830 call butterfly with Dec options, but AAPL has already broken through $700 and shows every sign of trying for $750 earlier than December. We're up 49% but it looks like we may be closing early once again this year. You will be telling your grandchildren about trading Apple back in the old days - it is an amazing story.
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Bernanke and company have certainly lit a fire under this market. After a very strong day yesterday, the rally continued as SPX gained $6 to close at $1466 and RUT tacked on $9 to close at $865. Trading volume spiked up to 3.6 billion shares of the S&P 500 stocks; this is the highest trading volume on the S&P 500 since March, in the midst of the rally earlier this year. Trading increased 9% on the NYSE and was up 6% on NASDAQ. Oddly, the VIX opened lower at 13.8%, but actually increased by about a half point to close at 14.5%.
Some of the economic data released today was positive, starting with the University of Michigan Consumer Sentiment reading at 79.2 for September, up from 74.3. And retail sales increased 0.9% in August. But the balance of the data was mediocre with industrial production dropping 1.2% in August, capacity utilization dropping to 78.2% from 79.2%, and business inventories rising 0.8%. One could view the inventory data in a more positive light by suggesting businesses are seeing more demand for products and increasing production. But that may be a stretch. More likely, sales are soft.
In the past two instances of quantitative easing, the ensuing rally lasted for a shorter period of time after each announcement. Will this one be different since the Fed didn't specify a definitive end? Or will the euphoria wear off pretty quickly?
The only remaining positions in my September condor are the put spreads and the Oct call hedges. These positions are mitigating some of my losses. The current P/L of my 20 contract position is now -$3,820 or about 13%. I also closed the call spreads in the October position today. I will roll those up and reposition them as soon as this rally moderates a bit. This leaves the October position with a P/L of -1,720. The Greeks for either position aren't particularly relevant since these are no longer delta neutral trades. I rolled the 710/720 puts in October up to 790/800. As soon as I reestablish the call spreads, this position will be back in the black.
This has been a rough couple of weeks for iron condor traders. I will be happy to relax this weekend and leave the market behind for a couple of days.
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I missed yesterday's blog - it was the anniversary of my son's death and was also a busy day in the markets and my business. Consequently, by the time the markets closed, I was spent.
The big question in my mind is the title of this blog. After such a huge day last Thursday, it seems like all of the excitement about the Fed pumping up the market is spent. Markets were weak, both yesterday and today, but they aren't giving back much thus far. SPX closed down $2 at $1459 and RUT also gave up $2 to close at $857. Trading volume in the S&P 500 dipped below the 50 dma to 2.4 billion shares today. Trading on the NYSE was flat and increased 15% on NASDAQ. The VIX is relatively low at 14.2% and actually decreased today, in a weak market. That tells me this market still has considerable underlying strength. SPX hit an intraday high around $1475 on Thursday but seems to be holding a solid support level around $1460. RUT broke its 2012 highs Thursday and appears to be establishing $855 as the near-term support. The $840 level was the support level defined before Thursday's run upward.
FedEx warned that they are seeing signs of a global slowdown, but that didn't seem to have a significant effect on the markets. Markets strengthened from about 2 pm ET through the close. There wasn't much in the way of economic data today; we get housing starts and building permits tomorrow.
My Sept iron condor position is essentially complete; assuming the remaining 790/800 put spreads expire worthless, I will take a loss of $4,680 on 20 contracts or 27% on capital at risk. That drops my year to date performance back to a 30% gain. I didn't control my losses on this position as well as I would have liked; I gave back two months of gains. The October condor stands at a net P/L of -$1,580 with delta = -$28 and theta = +$116. We have repositioned the call spreads to 900/910 and our maximum potential gain has been reduced to about 9%.
Isn't it about time for some dire news out of Europe?
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I will be traveling to Las Vegas to speak at the Forex and Options Expo shortly after the market closes today, so I will be unable to write my usual blog after the close. At this point in time, the market has responded very positively to Bernanke's policy changes. SPX is up over $23 to $1459 and RUT is up $11 to $857. VIX has dropped almost two percentage points to 14.3% as the market rallies strongly.
I must admit this strong move surprised me. I thought QE III had been sufficiently telegraphed that the market response would be mild, but that is certainly not the case.
RUT has trampled on my Sept condor; the market is still out on the damages, but a loss of the order of 30% for this month is my best guess at this point. I did not succeed in my usual objective of holding the losses to a good month's gains; I ended up giving back about two month's gains. But we remain in the black for the year and the October position is hedged and doing fine.
That's life in the trading game: sometimes you win and sometimes you lose; success is in minimizing the losses so that you remain positive over time.
