Dr. Duke's Blog

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Written by Dr. Duke

Created: 06 December 2010

All of the major indexes were down or flat today. Two stand-out exceptions were the Russell 2000 (RUT) and the NASDAQ. The Standard and Poors 500 (SPX) index closed down $2 at $1223. SPX has been unable to break through the highs set earlier this year. By contrast, RUT continues to set new highs; it closed at $761, up $4. Trading volume was down across the board with 2.7 billion shares of the S&P 500 stocks trading; volume was down 9% on the NYSE and down 11% on NASDAQ. The dollar traded higher today and that tends to hold equities down. Some traders are waiting for resolution of the tax rate questions in D.C. Declining volume may also be indicative of traders beginning to back off for the holidays, although it seems a little early for that.

My Dec iron condor on RUT stands at a $2,040 gain with delta = -$88 and theta = +$172. The 790/800 calls are still pretty far OTM, but RUT keeping on climbing. The Jan iron condor on SPX stands at a P/L of -$979 with delta = -$78 and theta = +$80. The theta/delta ratio of approximately one-to-one tells us this position is on the verge of requiring adjustment or re-positioning. No significant economic reports are due until Thursday, so I don't expect much market movement for a couple of days. But who knows what global events might trip this market one way or the other? Will resolution of the tax hike questions from D.C. be a "sell the news" event or fuel for a rally (assuming tax rates stay low)? So the market moving news for the next few days may be out of Washington.

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Written by Dr. Duke

Created: 03 December 2010

The jobs report this morning caused traders to pull back and reconsider their bullish stance. However, by the last half hour of trading, the bulls had reaffirmed their optimism and started buying in earnest. The SPX closed at $1225, up $3 on the day. By contrast, RUT traded in positive territory all afternoon, setting a new high for the year at $756, up $5. Trading volume was down with an 18% drop on the NYSE and an 11% drop on NASDAQ. Trading in the S&P 500 stocks dropped below its 50 dma. Economic data was mediocre to disappointing today, led by a disappointing jobs report. Small increases in payroll numbers were reported but much smaller than expected. In addition, the overall unemployment rate increased to 9.8%. Factory orders fell 0.9% and the ISM Services Index remained essentially flat at 55.0 (up from 54.3 in October).

While the futures dropped significantly after the jobs report was released this morning, the market slowly recovered throughout the afternoon. From my perspective, this looks like a bullish market that is not going to be easily dissuaded.

My RUT Dec iron condor stands at a P/L of +$1,980 with a position delta = -$67 and position theta = +$156. The 790/800 call spreads stand just outside of one standard deviation and we only have two weeks remaining, but RUT is making new highs every day. The Jan condor on SPX remains underwater with delta = -$76 and theta = +$80. The roughly one-to-one ratio of theta to delta warns us that this position is weakening and nearing the point of either adjustment or repositioning. December is historically a slow, largely sideways month as everyone starts to take off for the holidays. So this bullishness of the past few days may be tempered somewhat over the next couple of weeks. However, 2010 has been anything but typical so far.

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Written by Dr. Duke

Created: 02 December 2010

Now we have two very strong successive bullish days in the market - what will happen tomorrow after the jobs report? Profit taking or a continued strong bullish run? The SPX tacked on $15 today, closing at $1222. RUT gained $8 to set a new 2010 high at $751. Volume remained strong, but approximately flat with the past two days in the market. 4.1 billion shares of the S&P 500 stocks traded, slightly less than yesterday but still above the 50 dma. Trading on the NYSE was down 2% and was also down 4% on the NASDAQ.

Initial unemployment claims increased by 26 thousand to 436k and continuing claims also increased from 4.217 million to 4.270 million. But this didn't seem to affect the markets. Pending home sales jumped by 10.4% in October, which is the largest month-to-month change in ten years. This buoyed home builder stocks and fueled the overall market as well.

My Dec iron condor on RUT stands at a P/L of +$1,260 with delta = -$72 and theta = +$214. In spite of RUT hitting new highs, the 790 calls remain one standard deviation OTM and have a delta of 9. I hedged my January iron condor on SPX today, resulting in a P/L of -$1,460, delta = +$16 and theta = +$20. Can this market make it three in a row?

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Written by Dr. Duke

Created: 01 December 2010

The volatility of recent markets continues to amaze me. The major indexes all traded up to within striking distance of their 2010 highs within just a few hours of trading this morning. SPX closed up $26 at $1206, close to its April high of $1217 and its November high of $1223. RUT closed at $743, up $16. This actually exceeded the high closes in April at $742 and November at $737. Trading volume was still high, but slightly off of yesterday's record levels. 3.7 billion shares of the S&P 500 stocks traded today, down from yesterday but still above the 50 dma. Trading was down 9% on the NYSE and down 8% on NASDAQ.

The economic news was modestly positive with the ISM manufacturing index at 56.6 for November, about flat with October. Construction spending was up 0.7% on October, but economists were predicting a decline of 0.5%. ADP reported an increase in private employment of 93 thousand jobs. The FOMC released their Beige Book this afternoon, but it had no effect on the markets one way or the other. The volatility index dropped about 10% today.

My Dec condor on RUT stands at a P/L of +$1,320 with position delta of-$27 and position theta = +$199 with 15 days left to expiration. The 790/800 call spreads appear to be safe enough for now with a delta of 7, but a bullish run like we had in mid-Sept to mid-Oct could get there. The Jan condor on SPX stands at a P/L of -$1800, position delta = -$34 and position theta = +$95. The delta of the SPX $1280 calls hit 16 today so this position may require adjustment soon.

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Written by Dr. Duke

Created: 30 November 2010

Traders continued to worry about the European debt situation today, driving the indexes lower from the open. Similar to yesterday, much of the losses were recovered before the close. An improvement in the consumer confidence survey helped, rising from 49.9 in October to 54.1 in November; in addition, the Chicago PMI rose to 62.5 from last month's 60.6. But the indexes still closed with losses for the day. SPX lost $7 to close at $1181 after trading as low as $1174. RUT closed at $727, down $5. Trading volume was up across the board with 3.8 billion shares of the S&P 500 stocks changing hands; volume was up 34% on the NYSE and up 36% on the NASDAQ. Both indexes continue to trade within the consolidation range of the past three weeks or so.

My Dec RUT condor stands at a P/L of +$820 with delta = +$33 and theta = +$163. The Jan condor on SPX stands at -$1600 with delta = -$9 and theta = +87. This position is still delta neutral and the put spreads are well over one standard deviation OTM, but today's increase in volatility hurt the position's P/L.

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Written by Dr. Duke

Created: 29 November 2010

The markets opened weakly in response to news of Ireland's bailout amid concerns about other European countries perhaps needing similar programs in the near future. SPX dipped as low as $1174 before rebounding to close at $1188, down less than $2. RUT also dove as low as $721 before recovering most of the losses to close at $732, down only $1 on the day. Trading volume was up as compared to Friday's half day of holiday trading, but remained below long term averages. 2.9 billion shares of the S&P 500 stocks changed hands but the 50 dma = 3.5 billion shares. The major indexes are marking pretty clear trading ranges over the past three weeks or so. The question is whether some event can cause a break out one way or the other? It seems like a good time for sideways strategies on your favorite stocks.

My Dec RUT iron condor at 660/670 and 790/800 is in nearly perfect position with a P/L of +$840, delta = +$7 and theta = +$185. The Jan SPX iron condor at 1060/1070 and 1280/1290 stands at a P/L of -$300, delta = -$18 and theta = +$67.

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Written by Dr. Duke

Created: 26 November 2010

Traders slept in after indulging in too much turkey yesterday. Trading volume on this shortened holiday trading session was anemic by all standards. The few traders who were in the market appeared to still have their concerns about Ireland and the rest of the EU's economic problems. SPX declined $9 to close at $1189 while the RUT index lost $4, closing at $733.

My Dec RUT condor stands at +$360, delta = +$6 and theta = +$178. Volatility jumped today and that reduced the bottom line for this negative vega position. But the theta/delta ratio is excellent and the trade is almost precisely delta neutral. My Jan SPX condor stands at -$680, delta = -$20 and theta = +$68.

I updated the trading track record for Dr. Duke's Trading Group this morning; we have enjoyed an 88% win/loss ratio since we started in April. Maybe you should check us out.

Enjoy the rest of your holiday weekend.

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Written by Dr. Duke

Created: 24 November 2010

The major market indexes recovered yesterday's losses in a strong upward move today. SPX ran up $18 to close at $1198, just below the $1200 resistance level. RUT ran $17 to close at $737, approaching the highs of early November. These moves were motivated by favorable economic reports. Initial unemployment claims dropped to a two year low at 407k, down 34k from last week. Continuing unemployment claims came in at 4.18 million, down from last week's 4.32 million. The consumer sentiment survey from the University of Michigan moved up to 71.6 from last month's 69.3. But, on the other hand, new home sales dropped 8.1% and durable goods orders declined 3.3%. However, this bullish move must be tempered with the low pre-holiday trading volume. Trading in the S&P 500 stocks dropped to 2.7 billion shares, well below the 50 dma. Trading on the NYSE was down 20% and declined 14% on NASDAQ.

My Dec condor on RUT at 660/670 and 790/800 is very well positioned with a P/L of +$800 and a position delta of -$12 and theta = +$147. I initiated an iron condor on SPX this morning at 1060/1070 and 1280/1290 for a credit of $3,100 on 20 contracts. The position delta is -$33 with theta = +$64. I gave myself a bit more safety margin on the put side just in case the Euro debt situation or the Korean conflict becomes a greater concern for traders.

You have my best wishes for a happy and meaningful Thanksgiving with your families. It is important and healthy to pause often and remind ourselves how fortunate we really are.

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Written by Dr. Duke

Created: 23 November 2010

The markets have been under pressure recently due to concerns about European sovereign debt and some debate over the effectiveness of further quantitative easing by the Fed. But the Korean conflict and continuing tensions added fuel to the fire. Stocks opened down and stayed down throughout the day. SPX traded as low as $1177 before bouncing weakly to close at $1181, down $17. RUT traded down to $720, off $7. Third quarter GDP grew 2.5%, up from the second quarter's 1.7%. But this good news was largely ignored. The FOMC minutes caused minimal reaction in the markets; the Fed cited broad-based evidence of recovery, but it is very modest, and they foresee minimal improvement in the unemployment picture in the short term. Trading volume was flat to down with a modest increase in trading in the S&P 500 stocks to 3.4 billion shares, below the 50 dma at 3.6 billion shares. Trading on the NYSE was down 13% and flat on NASDAQ. The low trading volume suggests the large institutional traders have not yet pushed the exit button in response to the Korean situation, but that could change quickly. The volatility index, VIX, jumped to 21% today, but closed off of its highs.

The Dec condor sits at a P/L of +$580, delta = +$45 and theta = +$107.  The theta/delta ratio is still strong and the delta of the $670 puts is at 16, so this position is in good shape thus far in this correction. Now we watch Korea to see what happens next; of course, Ireland, Portugal or Greece could steal the spotlight at any moment as well. In short, there are several potential events that could spark a sell-off - a little disconcerting.

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Written by Dr. Duke

Created: 22 November 2010

Concerns over European debt problems and the foreclosure crisis in the states appeared to dominate traders' thinking today as stocks struggled to stay positive. The SPX hit a low at $1185 before rebounding to close at $1198, down $2. RUT was more positive, closing up $3 at $727. Trading volume was flat with 3.2 billion shares of the S&P 500 stocks trading and volume declined 18% on the NYSE. Trading volume on NASDAQ increased 2%. The support that was found for the SPX is a positive sign that this correction may have run its course, although this market defies prediction. The only certainty is volatility.

My Dec iron condor is in excellent shape with a P/L of +$640, delta = +$13 and theta = +$136. It seems hard to believe that we will be looking at January options positions soon. Where did this year go?