Dr. Duke's Blog

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Written by Dr. Duke

Created: 20 December 2010

The market opened in positive territory and chopped sideways most of the day, but preserved modest gains into the close. Trading volume dropped significantly from expiration Friday. The holidays have clearly begun, but market gains continued. SPX closed at $1247, up $3 on the day. RUT also closed up $3 at $782. Only 2.9 billion shares of the S&P 500 stocks traded today; the 50 dma is 3.7 billion shares. Trading on the NYSE dropped 45% and volume dropped 30% on NASDAQ. No significant economic news was reported today. Housing stocks are trading higher, anticipating the home sales report on Wednesday. Energy stocks also did well today, based on stronger oil and gas commodity prices.

My Jan SPX iron condor at 1150/1160 and 1300/1310 stands at a P/L of -$1499 with position delta = -$52 and position theta = +$98. This condor is well positioned with the deltas of the short options at 11 to 12 each and a theta/delta ratio of about two to one.

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Written by Dr. Duke

Created: 17 December 2010

Today was "quadruple witching", meaning stock index options, stock index futures, stock options, and single stock futures all expired today (technically, tomorrow, but...). Traditionally this results in a large volume spike but today's volume appeared to be even larger than normal. Trading in the S&P 500 stocks spiked up to 4.8 billion shares, way above the 50 dma at 3.7 billion shares. Trading volume on the NYSE jumped 53% and increased 40% on NASDAQ. But the markets ended the day largely unchanged with SPX at $1244, up $1 and RUT closing at $780, up $3.

Other than earnings reports from RIMM and Oracle, there wasn't much economic news today. The leading indicators for November came in at +1.1% and this was a favorable surprise to analysts, but it couldn't really get the markets moving. Index option settlement prices were determined this morning; RUT settled at $777.11 and SPX settled at $1242.35. So my 660/670 puts from the Dec condor expired worthless, completing my Dec iron condor trade. I was able to get my Jan SPX 1150/1160 put spreads on for $0.75 this morning; this was less credit than I wanted, but I decided not to move up to the 1160/1170 strikes and accept more risk in the event this market backs up. The adjustments I made this week improved the Greeks of the Jan condor considerably with a position delta of -$25 and theta = +$68.

So now we move into what presumably will be a slow couple of weeks in the market as traders focus on the holidays and their families. It should be a good time to have your delta neutral trades working.

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Written by Dr. Duke

Created: 16 December 2010

The markets opened in the red this morning based on weak unemployment and housing numbers, but a surprise from the Philadelphia Fed turned the markets around. And, surprisingly, there wasn't any last hour sell-off. SPX closed up $8 at $1243 and RUT also gained $8 to close at $777. Trading volume was flat with the S&P 500 stocks trading at the 50 dma; trading on the NYSE dropped 5% and trading volume dropped 7% on NASDAQ. Initial unemployment claims were essentially flat at 420k (423k last week) and continuing unemployment claims rose by 22k to 4.1 million. Housing starts were reported at 555k, up from last month's 534k, but building permits dropped to 530k from 552k. This data wasn't very encouraging but the Philadelphia Fed's Business Outlook Survey surprised analysts and buoyed the street. The December survey came in at 24.3, up from 22.5.

I was unable to get the price I wanted to establish my new Jan SPX put spreads so my Jan SPX condor remains unbalanced with only the 1300/1310 call spreads. Have the markets entered "holiday mode" yet? Largely sideways trading, low trading volume, and low volatility are the characteristics to watch for. The bigger question may be whether 2011 will be as bullish as many are predicting.

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Written by Dr. Duke

Created: 15 December 2010

The markets opened up this morning but gradually weakened as the day wore on. The SPX lost $6 to close at $1235 while RUT closed at $768, down $3. Trading volume was flat with the S&P 500 stocks trading right at the 50 dma of 3.5 billion shares. Trading on the NYSE was up 9% but volume was down 1% on the NASDAQ. The VIX rose to 18% on the day of bearish trading action.

I closed the 1060/1070 put spreads of my Jan SPX iron condor today for $0.25, but was unable to get my new put spreads established at a favorable price. I will work on that tomorrow. This places the Jan condor roughly at break-even and the new put spreads will position the trade for a reasonable potential gain. I also closed my Dec AAPL 290/300 call spreads for a 24% gain.

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Written by Dr. Duke

Created: 14 December 2010

It is becoming dangerous to be long the markets during the last hour of trading. The markets were modestly up and chopped sideways most of the day, became even more choppy after the FOMC announcement and then sold off in the last hour to close nearly unchanged for the day. SPX closed at $1242, up $1 and RUT lost less than a dollar to close at $772. Trading volume was flat to down with 3.5 billion shares of the S&P 500 stocks trading (below the 50 dma). Trading on the NYSE was up 1% and trading on NASDAQ was up 3%. The Fed announcement didn't reveal anything new, but did result in some choppy trading immediately afterward. Volatility swung up, down, and then back up, to close unchanged at 17.6%.

My Jan SPX iron condor remains at about -$2500 with delta = -$64 and theta = +$84. The 1300/1310 call spreads are about one standard deviation OTM. I closed Dec condors on AAPL and GOOG for gains of about 23%. The question remains whether this market has any more upside left in 2010. Recent gains have brought on bouts of profit taking to hold the overall market in check. Historically, the markets have not trended strongly in either direction the last couple of weeks of the year.

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Written by Dr. Duke

Created: 13 December 2010

Today's market started off bullish just as nearly every day has recently. The SPX gained about $5 to $6 and then largely traded sideways until the last hour when it gave back all of the gains to close at $1240, unchanged for the day. RUT actually performed worse than the SPX for a change and lost $5 to close at $772. Trading volume was largely flat with the S&P 500 stocks trading just above the 50 dma at 3.6 billion shares. Trading was down 4% on the NYSE and up 5% on NASDAQ. Volatility hit a new low this morning, breaking below 17%, but then rose this afternoon to close at 17.6%.

I closed the 1280/1290 call spreads of my Jan SPX iron condor for $2.75 and rolled them up to 1300/1310. That brings my Greeks more in line with delta = -$56 and theta = +$73. But my maximum potential gain has been reduced to about $400. I am considering rolling my put spreads up to build a little more profit potential into this trade, but I am wary of a market pullback. The Dec 660/670 put spreads remaining from my Dec iron condor on RUT are far OTM so I will allow them to expire worthless, resulting in a 10% gain for the December position.

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Written by Dr. Duke

Created: 10 December 2010

All of the major market indexes chalked up gains today; the S&P 500 and the Russell 2000 indexes made new 2010 highs today ($1240 and $777, respectively). But these successive gains of the last few days are occurring on flat trading volume. Trading in the S&P 500 stocks remains flat at the 50 dma while volume declined 2% on the NYSE and declined 11% on NASDAQ. That isn't terribly bullish.

Another interesting divergence occurred today: although the SPX gained $7 today to close at $1240 for a new high, the volatility index (VIX) rose about one half point to 17.6% today. Normally we would expect VIX to decline as SPX rises. Everyone I hear on CNBC is bullish; one comment today was "the fix is in", suggesting that the market will continue to trend upward. A few minutes ago, I heard Cramer declare this a "monster bull market".

When all of the gurus are bullish, trading volume is weak, and when the VIX didn't make a new low today, it makes me wonder...

But, in the meantime back at the ranch, my Jan iron condor on SPX is still underwater and the Greeks tell the story with delta = -$104 and theta = +$90. Many signs are suggesting a correction, but I will have to reposition this trade if SPX continues upward.

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Written by Dr. Duke

Created: 09 December 2010

The markets traded largely sideways today but the major indexes did manage to close modestly higher (with the exception of the Dow). SPX finally broke through $1230 and held it into the close at $1233, up $5. RUT made another high (wow) at $768, up $4. Trading volume was flat to slightly higher with the S&P 500 stocks trading at the 50 dma. Trading on the NYSE increased 2% and increased 10% on NASDAQ. The Volatility Index (VIX) dropped almost 3 points to close at 17%. In general, the VIX trades lower as the market trades higher and vice versa. So the fact that VIX has been trending downward as the market climbs isn't surprising. But as VIX gets lower, many analysts see the probability of a market pullback increasing. Jim Bittman gave an interesting talk at the Traders Expo in Las Vegas on the VIX; his message was to watch for divergence of the VIX trend with the market trend for signals of a significant market shift. But what we have here is standard VIX behavior: market trends higher and VIX trends lower.

My Jan condor on SPX sits at a P/L of -$1,139 with delta = -$87 and theta = +$81. The delta of my short call is 21 where I would normally be adjusting this position, but I am allowing this one to move a little further because of my expectation of a slow down in the markets as we enter the holidays. Absent a pullback or several days of sideways action, I will be rolling those call spreads higher soon.

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Written by Dr. Duke

Created: 08 December 2010

The markets traded largely sideways today but managed some small gains at the end of it all. The SPX closed up $5 at $1228 while RUT closed essentially unchanged at $764. Trading volume was down across the board with 3.8 billion shares of the S&P 500 stocks trading, down nearly to the 50 dma. Trading was down 29% on the NYSE and down 7% on NASDAQ. SPX appears unable to break through $1230 to new highs, but, just as importantly, the bears have been unable to pull the S&P 500 down either. RUT has outperformed the blue chips all year, reaching new 2010 highs over the past several trading days. But even RUT is showing signs of slowing down the past two days, trading essentially flat yesterday and today. Most economic data has been consistently showing a slow but steady recovery, but global economic woes appear to still have the street worried. Even a compromise on taxes did little to move this market.

I closed the 790/800 call spreads of my Dec iron condor on RUT today; I will allow the 660/670 put spreads to expire worthless; as they are almost four standard deviations OTM, that appears to be a safe bet. Assuming those spreads expire worthless, this position gained $1,660 on 20 contracts or 10% on capital at risk. The Jan condor on RUT continues to run right along the edge of adjustment with a P/L of -$1539, delta = -$90 and theta = +$92. The delta of the 1280 calls is 20. The theta/delta ratio of about 1:1 tells the story.

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Written by Dr. Duke

Created: 07 December 2010

News that taxes won't be raised in 2011 was welcomed by the markets this morning, but the euphoria didn't last. The SPX traded as high as $1235 but was pulled back to a closing price of $1224 for a net increase of less than a dollar. RUT fared better (as usual of late), but also pulled back from its highs to close at $764, up $4. Trading volume jumped higher today with 3.9 billion shares of the S&P 500 stocks trading; trading on the NYSE was up 70% and volume was up 18% on NASDAQ. Some observers blamed the pull back on news of widening probes into hedge fund trading.

My Dec iron condor on RUT stands at a P/L of +$1,460, delta = -$130, theta = +$232. The Jan SPX condor stands roughly at break-even with delta = -$52 and theta = +$64. Did you notice GOOG? It has gapped up at the open for two days in succession... interesting.