Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 02 March 2012

Another down day - it gives one pause. However, SPX is still holding up rather well. SPX closed down $4 at $1370, but that is still above where it opened yesterday and not far off of recent highs set for this year. On the other hand, RUT has been weak since early February and has not been following SPX's lead higher. Today, RUT broke down out of its recent trading range from $810 to $832. RUT lost $13 today to close at $802. The next support level for RUT is at the 50 dma at $790. Is RUT the leading indicator for this market? Keep an eye on the $1340 support level for SPX; if that breaks, we may be in for the long-awaited correction. On the other hand, the market rarely does what the majority expect.

Trading volume in the S&P 500 fell off significantly today to 2.3 billion shares. Trading was down 14% on the NYSE and down 8% on NASDAQ. Today was a slow day for economic news, so most analysts attributed the market weakness to concern over rising oil prices and the uncertainty in the Middle East (that's new?).

My Mar iron condor on RUT at 730/740 and 860/870 stands at a P/L of +$2,530 with position delta = +$5 and position theta = +$149. My Apr condor on RUT at 700/710 and 910/920 stands at a P/L of +$280 and delta = +$10 and theta = +$63. The recent decline on RUT has brought both of these positions back to delta neutral, so we are well positioned. March is now down to less than two weeks to expiration, so that position looks good. But markets can change quickly, so we will continue to watch our positions carefully.

Details

Written by Dr. Duke

Created: 29 February 2012

Bernanke's comments to the effect that another round of quantitative easing was not in the works appeared to impact the markets negatively today, but one has to wonder if this is only a transient effect. I am inclined to think it was a knee-jerk reaction that is likely to be reversed tomorrow. SPX lost $7 to close at $1366 and RUT lost $13 to close at $811. But SPX is still well above the significant level of support at $1340, so it is much too soon to call it a correction (even though everyone is expecting one). Trading volume spiked up with 3.3 billion shares of the S&P 500 trading. Trading increased 27% on the NYSE and increased 18% on NASDAQ.

Economic news was actually pretty positive today with 3% growth in GDP reported for the fourth quarter and the Chicago PMI increased to 64.0 from 60.2. But those positive numbers appeared to be ignored by the traders today.

My Mar iron condor on RUT stands at a P/L of +$1,870 with delta = -$8 and theta = +$183. Today's move downward on RUT took this position back to delta neutral, which accounts for the large improvement in its profitability. But we'll see what tomorrow brings - it is too early to count our gains for March..

Details

Written by Dr. Duke

Created: 28 February 2012

The familiar pattern reoccurred today - a weak open followed by buying that drives prices higher. Going long at the open and closing later in the day is a strategy that would have worked well for many of the trading sessions the last several weeks. SPX closed up $5 at $1372 while RUT lost $3 to close at $824. This pattern of SPX steadily gaining while RUT has traded sideways has been going on for nearly a month. How does this end? SPX corrects? Or RUT rallies? I'm inclined toward the correction, but this rally has proven very resilient thus far this year. Many bears have been run over. Trading volume in the S&P 500 was down a bit at 2.6 billion shares; trading on the NYSE was down 2% while volume was up 2% on NASDAQ.

Durable orders dropped 4% in January after a 3.2% increase in December. The Case Schiller housing price index dropped 4% in December, but consumer confidence spiked up in February to 70.8 from January's 61.5.

My Mar iron condor on RUT continues to ride along near the edge with P/L = +$470 and position delta = -$102 and position theta = +$238 on 20 contracts. Today's pull back in RUT reduced the 860 call delta to 15, so that accounts for the more positive P/L today. If RUT spikes up to become more aligned with the S&P 500, we will be forced to hedge this position once again; on the other hand, if RUT is the harbinger of a correction in SPX, a pull back a bit further will put this position in a sweet spot. But the key to success in the non-directional trading business is to only trade what the market gives me today - predictions are forbidden.

Details

Written by Dr. Duke

Created: 27 February 2012

Markets opened weakly this morning based on renewed concerns over the European debt crisis coupled with concern about high oil prices. But the buyers appeared and drove the market averages back up to close the day approximately even or with modest gains. SPX closed at $1368, up $2 while RUT was unchanged at $827. Trading volume in the S&P 500 bumped up to 2.8 billion shares; trading jumped 20% on the NYSE and was up 8% on NASDAQ. SPX has been rising slowly for the past few days, but a glance at the chart is impressive: SPX has gained 14% since mid-December. The price move has been very consistent and steady. By contrast, RUT has been bouncing up against $830 since early February and has made no progress at all this month.

The only economic news of the day was pending home sales, which were up 2% in January - quite the contrast from December drop of 1.9%.

My Mar condor on RUT stands at breakeven with delta = -$115 and theta = +$228. The delta of the short 860 calls is 18, so we are still under pressure on the top side. That fact that RUT has stalled at $830 for this entire month has been very helpful for this position. We will see what tomorrow brings.

Details

Written by Dr. Duke

Created: 23 February 2012

The markets opened up lower this morning, but the bulls pushed the major averages upward throughout the day and closed near their intraday highs. SPX closed at $1364, up $6 and RUT closed up $13 at $829. The bulls seem to have sufficient strength to hold this market up at these levels, but cannot push through the resistance set by last year's highs. Whereas SPX is knocking on the door of last year's highs, RUT is still a ways off of the highs set around $865 in 2011. Trading volume increased slightly with 2.7 billion shares of the S&P 500 trading (the 50 dma sits at 2.9B); volume increased 6% on the NYSE and trading volume was also up 3% on NASDAQ.

Initial unemployment claims were flat at 351k and continuing unemployment claims dropped by 50k to 3.39 million. This report is typical of recent economic data: neutral to modest improvement, not enough to get traders excited or cause them to panic either.

My March iron condor on the Russell 2000 Index (RUT) stands at a P/L of -$450 and position delta = -$122 and position theta = +$189 with 21 days to go to expiration. The 860/870 call spreads are inside of one standard deviation OTM, so that is where the pressure is on this position. The RUT chart is interesting; it seems RUT can't quite push through the recent highs around $832 or so. If RUT can break through to close above $835, that may well be a very bullish sign for the overall markets since the mid-caps often lead bull markets. Of course, if that happens, I will have to take quick action to salvage this Mar condor.

Details

Written by Dr. Duke

Created: 21 February 2012

The big news this morning was the news that a settlement had been reached to secure the bail-out for Greece. The market opened weakly higher and then gave that up and dropped underwater for most of the day. The markets recovered somewhat in the last hour, enabling most of the major market indices to close in the black, but barely. SPX gained $1 to close at $1362. RUT closed down $5 at $823. Trading volume dropped off from yesterday with 2.7 billion shares of the S&P 500 trading today; trading on the NYSE dropped 13% and volume dropped 7% on NASDAQ.

The only significant economic news of the day was the Greek debt settlement, and apparently that is baked into the current prices. An alternative explanation is the reality that a long term settlement to Europe's sovereign debt problems is far from settled. After all, this deal has to get through the German parliament, among other hurdles. And Greece isn't the only country in trouble.

My Mar condor on RUT stands at a P/L of -$910 with position delta = -$19 and position theta = +$151 (on 20 contracts). This position is still hedged and the theta/delta ratio is very strong.

I am at the Traders Expo in New York and it has been great to meet many of you face to face. Thank you for looking me up at this conference.

Details

Written by Dr. Duke

Created: 17 February 2012

The markets chopped sideways today, trading up and then back down and finally closing higher for the day. SPX closed at $1361, up $3 and RUT edged lower by $1 and closed at $829. Trading volume was up modestly with 3.1 billion shares of the S&P 500 trading; this is just above the 50 dma at 2.9B. Trading volume was up 11% on the NYSE and up 2% on NASDAQ.

The RUT settlement price for February is $833.16 so the remaining spreads in my RUT Feb iron condor expired worthless for a net gain of $2,200 on 20 contracts or 13.3%. This brings our gains in the Flying With The Condor™service thus far in 2012 to 9.8% - not a bad start to the year. The Mar position on RUT at 730/740 and 860/870 remains hedged with a P/L of -$1,720 with delta = -$35 and theta = +$119.

Enjoy the long weekend. For those of you in the New York City area, come by and see me at the Traders Expo. We can stop for a drink and chat. I will be signing books at the Traders Press booth Monday afternoon.

Details

Written by Dr. Duke

Created: 15 February 2012

The markets opened trading largely sideways today, but the mood darkened around noon and the major indexes all closed down for the day. Perhaps more significantly, trading volume increased today; this may signal some institutional profit taking. SPX closed down $7 at $1343 and RUT lost $7 to close at $814. Trading in the S&P 500 jumped up to 3.1 billion shares; trading also increased on the NYSE, up 9%. Trading volume declined 4% on NASDAQ. VIX jumped up 1.6 points to 21.1%.

The Empire Manufacturing Survey came in at 19.5 for February, up markedly from January's 13.5. Industrial production was flat for January and capacity utilization was also nearly unchanged at 78.5%.

My Feb iron condor spread on RUT stands at a P/L of +$2,000 with delta = +$35 and theta = +$345. The call spreads and the put spreads are both about 2.5 standard deviations OTM. My Mar condor stands at a P/L of -$1,060 with delta = -$70 and theta = +$164.

Many analysts have been predicting a slight correction in this market since early February; perhaps we are seeing the beginnings of that correction?

Details

Written by Dr. Duke

Created: 14 February 2012

The markets spent the day underwater, but a strong rally in the last 30 minutes of the trading session repaired almost all of the damage. SPX closed down one dollar at $1351 and RUT closed at $821, down $4. Trading volume bumped up to the 50 dma in the S&P 500 stocks with 2.9 billion shares. Trading on the NYSE increased 9% and spurted up 32% on NASDAQ. Retail sales increased 0.4% in January, but concern about the precarious situation in Greece appeared to weigh on the markets. Notice how SPX once again seemed unable to penetrate that $1350-$1355 area. Breaking through and holding above that level will be a strong bullish signal.

My Feb RUT iron condor spread at 770/780 and 850/860 stands at a P/L of +$1,940 with delta = -$1 and theta = +$304. The Mar position at 730/740 and 860/870 stands at a P/L of -$1,260 with delta = -$92 and theta = +$155. The Mar position is sitting right at the tipping point to require adjustment. We'll see if the bulls reassert themselves tomorrow - that last half hour today looked pretty strong...

Details

Written by Dr. Duke

Created: 13 February 2012

We ended last week worried about Greece; on Monday, all of those pesky problems have been solved. Of course, I am being sarcastic. The volatility of these markets over the past few years has been extremely challenging for traders. The markets jumped at the opening today and stayed pretty steady throughout the session. But SPX appears to be finding it tough to hold much above $1350. Today it closed at $1352, up $9. RUT ran up $11 to close at $825. Trading volume dropped off today with 2.5 billion shares of the S&P 500 trading; trading volume dropped 8% on the NYSE and dropped 10% on NASDAQ.

No significant economic reports were issued today.

My Feb iron condor on RUT stands at a P/L of +$1,500 with delta = -$46 and theta = +$477. The Mar position is underwater by $1,760 with delta = -$95 and theta = +$148. Now we wait to see what tomorrow brings - let's see: markets down Friday, and up Monday; tomorrow must be a down day.