Dr. Duke's Blog

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Written by Dr. Duke

Created: 14 November 2011

The markets traded downward today on reduced volume, again based on worries about European debt issues. SPX lost $12 to close at $1252 and RUT closed at $733, down $12 on the day. Trading volume was down across the board with 2.3 billion shares of the S&P 500 trading today. Trading volume was down 11% on the NYSE and down 13% on NASDAQ. Volume hit the 50 day moving average on the big down day last Wednesday and has steadily dropped every day since then. Again, we are seeing signs of a market trapped in a sideways trading range with many traders waiting on the sidelines for a "sign". The absence of any significant economic reports probably helped this largely choppy, somewhat downward trading day. The VIX moved up during the trading day to 33% but closed at 31%, a bit above yesterday's close at 30%.

My Nov RUT iron condor position stands at a P/L of +$820 with position delta = +$19 and theta = +$390. The Dec condor stands at a P/L of +$440 with position delta = -$26 and theta = +$97.

So now we return to Euro watching...

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Written by Dr. Duke

Created: 11 November 2011

That infamous statement was commonly heard from stockbrokers who were trying to calm investors in 2008. Of course, history was on their side, but it has sometimes been many years before a bearish decline was worked off; in fact, we still have not reclaimed those 2007 highs. Well, this isn't your daddy's market. We recover dramatic downturns in the market in a matter of days, not years! SPX plunged $47 on Wednesday, but has now recovered about 75% of that loss in just two sessions! SPX tacked on another $24 today to close at $1264 with trading volume of 2.5 billion shares, a dramatic drop from the 3.5 billion shares traded Wednesday. RUT gained $19 to close at $745. Trading volume declined 19% on the NYSE and dropped 16% on NASDAQ. Wednesday's decline reaffirmed support at $1220. Resistance levels are at $1275 (Tuesday's high before Wednesday's collapse) and $1290 (the recent high of October 27). This extreme volatility is unnerving, but one has to be impressed with the strong underlying bullishness of this market. We may well be trapped in a sideways trading range for a while, but the bulls seem to be able to prevent the outbreak of a genuine bearish market. At least, they have turned back the attempts thus far. The decline in trading volume both yesterday and today is certainly not a strong bullish sign, but it is hard to argue with rising prices.

The only economic data today was the University of Michigan Consumer Sentiment Survey; it came in at 64.2 for November, up from the previous value of 60.9.

Hong Kong sold out all of their new iPhone4s models in three hours on Friday! I think AAPL is setting up to have a blow-out earnings announcement in January. I am looking at possible trades to take advantage of that prediction.

My Nov RUT iron condor at 660/670 and 790/800 stands at a net gain of $220 with position delta = -$24 and position theta = +$374, on 20 contracts. The put spreads are two standard deviations OTM and the call spreads are 1.2 standard deviations OTM. Normally I would close the call spreads at this point since they are less than two standard deviations OTM. But I am trying to nurse a small gain or break-even out of this position, so I will watch the call spreads closely and probably close them next week. The Dec condor at 560/570 and 830/840 stands at a P/L of -$200 with delta = -$37 and theta = +$105.

Have a nice weekend.

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Written by Dr. Duke

Created: 10 November 2011

The markets bounced back a bit from yesterday's excesses. SPX gained $11 to close at $1240. RUT gained $7 to close at $725. So the $1220 support level on SPX stills holds; perhaps the new trading range is $1220 to $1290. The VIX pulled back to close at 33% today, not quite in bullish territory, but certainly "talked back from the edge". Trading volume fell off with 3.1 billion shares of the S&P 500 trading today; volume dropped 17% on the NYSE and dropped 12% on NASDAQ. It seems like we will remain trapped in these volatile trading ranges as long as the drama in Europe continues.

My Nov condor on RUT stands at a P/L of -$680 with delta = +$38 and theta = +$330. the Dec position stands at -$320 with delta = -$19 and theta = +$110. All of this volatile trading back and forth based on the latest news or rumors from Europe is painful for stock traders and directional options traders. But it works wonders for non-directional options spreads.

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Written by Dr. Duke

Created: 09 November 2011

A cascade of events forced the yields of Italian bonds to hit 7.5% today. Higher yields triggered margin requirements, forcing many to dump Italian bonds, driving the yields higher yet. This, in turn, spooked traders in the US markets. Traders were moving to cash with financial stocks hit especially hard. Many expected Berlusconi's pledge to resign as soon reforms were passed to calm the markets, but just the opposite happened today. Apparently many analysts are skeptical that Berlusconi will in fact resign and/or that the reforms will be passed.

The SPX lost $47 to close at $1229 and RUT closed down $36 at $719. Trading volume in the S&P 500 jumped up to the 50 dma with 3.5 billion shares changing hands today. Trading volume jumped up 24% on the NYSE and rose 16% on NASDAQ. SPX is still above the $1220 support level, but not by much. RUT has broken support at $730-$735 and has now returned to the trading range of the past three months.

My Nov RUT condor stands at a P/L of -$1840 with delta = +$41 and theta = +$334. The Dec position stands at a P/L of -$380 with delta = -$21 and theta = +$102. All eyes are on Europe.

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Written by Dr. Duke

Created: 08 November 2011

Markets traded largely sideways until early afternoon when news of the Italian Prime Minister's resignation boosted stocks going into the close. SPX gained $15 to close at $1276. RUT followed with a $10 gain to close at $755. Trading volume was basically flat to slightly upward from yesterday with 2.9 billion shares of the S&P 500 stocks trading today. Volume on the NYSE was up 13% and trading volume was up 8% on NASDAQ.

SPX broke out of the old trading range on October 23rd and has been able to hold that support level at $1220 since then. This is evidence, in my opinion, of the underlying bullish nature of this market. But I would be cautious about predicting the beginning of a bull market. Any unexpected news or rumors out of Europe could easily send this market back down. We are now approaching the highs set a few days ago at $1285. Breaking through $1285 would be a key bullish signal.

Minimal economic data has been reported thus far this week. Unless the unemployment claims or PPI data later this week are surprising, the focus will remain on Europe.

The VIX dropped to 28.5% today, suggesting institutional investors are becoming more bullish. But the modest trading volume would suggest they are tentative about jumping into this market.

My Nov RUT condor stands at a P/L of -$2,060 with delta = -$111 and theta = +$462. The Dec condor stands at a P/L of -$920 with delta = -$54 and theta = +$105.

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Written by Dr. Duke

Created: 07 November 2011

The Euro Watch continues. After being obsessed with Greece for so long, what do we do when it appears Greece is getting its act together? We shift our focus and worries to Italy. It appears that traders have now discounted the prospect of a double dip recession in the states and that has moved us out of the trading range we have been stuck in since early August. But now our Euro focus has shifted to Italy. So we will likely to trapped in another sideways trading range, just slightly higher than the last one. SPX closed at $1261, up $8 while RUT lost $1 to close at $745. Trading volume declined with 2.6 billion shares of the S&P 500 trading today; trading dropped 6% on the NYSE and dropped 11% on NASDAQ.

No economic data was reported today - not that anyone would pay any attention to it. We are too busy listening to every rumor coming out of Europe - quite a change for us normally provincial Americans. A few months ago, very few of us could have named the leaders of France or Germany, much less Greece.

My Nov iron condor on RUT stands at a P/L of -$2,340 with position delta = -$62 and position theta = +$473. The Dec condor stands at a P/L of -$940 with position delta = -$47 and position theta = +$112.

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Written by Dr. Duke

Created: 04 November 2011

The combination of a mediocre jobs report and the ongoing political drama in Greece left stocks trading weakly downward today. The vote of confidence for Papandreou is scheduled for 6 pm EDT today. Regardless of the outcome of that vote, I think this market remains paralyzed by European debt concerns for quite some time, at least through the end of the year. SPX lost $8 to close at $1253 after trading as low as $1240 earlier today. RUT closed at $746, down $5. Trading volume dropped to 2.9 billion shares of the S&P 500 today; trading on the NYSE dropped 19% and trading volume dropped 8% on NASDAQ.

The nonfarm payroll report was a bit disappointing for analysts; an increase of 80k nonfarm jobs were reported with an additional 104k private payroll jobs. Unemployment remained essentially flat at 9.0%, as compared to last month's 9.1%. Albeit weak, this jobs report underscores other recent economic data, suggesting a painfully slow economic recovery rather than the feared "double dip". I believe that economic data is the explanation for the S&P 500 holding support at $1220 this week, rather than falling back into the $1120 - $1220 trading range of the past 2-3 months. This results in what I am calling "a cautious bull market". There appears to be an undercurrent pushing this market higher, but it is being held back by the Euro Zone drama.

The volatility index, VIX, returned to 30%, which was the lower end of its trading range over the past three months. It will probably be difficult for volatility to remain below 30% until some confidence grows in the European debt bail-out plan. News out of the G20 Summit wasn't encouraging.

My Nov RUT iron condor continues to limp along with a P/L of -$4,380 with position delta = -$90 and position theta = +$439. The Dec condor stands at a P/L of -$1,320 with position delta = -$48 and position theta = +$104.

Have a great weekend.

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Written by Dr. Duke

Created: 02 November 2011

The markets bounced back from yesterday's disaster caused by Greek politics. SPX closed up $20 at $1238 and RUT gained $19 to close at $733. RUT completely recovered all of yesterday's losses while the SPX recovered a majority of the losses. Trading volume dropped off significantly with 3.1 billion shares of the S&P 500 trading. Trading volume dropped 29% on the NYSE and dropped 16% on NASDAQ. I would use yesterday's close on SPX at $1218 as the support level to watch as we continue watching this European sovereign debt comedy of errors.

Many analysts were watching for something new in the FOMC report and Bernanke's news conference, but those were pretty much non-events. The Fed doesn't foresee worsening economic conditions, but they see very slow recovery and remain committed to an easy money policy. ADP reported 110 thousand new private sector jobs in October, but this was below analyst estimates.

My Nov RUT condor stands at a P/L of -$3,940 with delta = -$23 and theta = +$306. That huge theta should start to work our position into the black. The Dec RUT condor stands at a P/L of -$1,060 with delta = -$31 and theta = +$97.

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Written by Dr. Duke

Created: 01 November 2011

Papandreou's announcement that he would seek a public referendum on the EU debt bailout plan sent markets tumbling both in Europe and here. Markets recovered somewhat as the day wore on. There appear to be two schools of thought: 1) Greek voters turn the rescue plan down and a global meltdown of banking follows, or 2) The EU tosses Greece out of the EU and Greece defaults and the markets have already priced that in. I am inclined toward the latter opinion, but I am certainly not a global banking expert.  SPX lost $35 to close at $1218, while RUT lost $27 to close at $714. The VIX popped up as high as 38% before settling back to 35%, for a five point jump from yesterday's close.

The area of about $1220 to $1230 is a congested support level first established back in early September after the August crash. The SPX struggled in that area for several days recently before breaking out to the upside. So far, that area of support is holding, but tomorrow may be a different day.

The ISM manufacturing index came out for October at 50.8, essentially flat from the previous month's 51.6. But the markets were completely focused on Europe and secondarily on the collapse of MF Global.

I removed the hedge on my Nov condor this morning. The spike upward in IV has hurt the P/L on both of the condor positions, but the position Greeks are actually pretty good. The Nov condor stands at a P/L of -$4,100 for 20 contracts with delta = +$8 and theta = +$244. The Nov 660/670 put spreads remain about one standard deviation OTM. The Dec condor stands at P/L = -$1020 with delta = -$19 and theta = +$95.

All eyes on Europe... again.

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Written by Dr. Duke

Created: 31 October 2011

Lingering concerns about Europe and BF Global's bankruptcy appeared to worry traders today. But it could have been simply a case of many institutional traders selling to capture profits for their month-end numbers. In any case, SPX shed $32 to close at $1253 and RUT closed at $741, down $20. The VIX bounced back up to 30%, reflecting some fears about a possible turn back down to test previous lows. Trading volume fell off a bit, with 3.3 billion shares of the S&P 500 trading. Trading volume rose 4% on the NYSE and fell 3% on NASDAQ. Today's price action took the SPX back well below its 200 dma; this is a significant level because many institutions trigger their trading off the 50 and 200 dma.

I removed the hedge on my Dec condor this morning, but left the Nov hedge in place. Both positions remain underwater, but the Greeks of both positions are in good shape. The November position delta is +$18 and position theta = +$200. Delta and theta for the Dec position are -$39 and +$89, respectively.

I have to run; goblins are at the door!