Dr. Duke's Blog

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Written by Dr. Duke

Created: 16 March 2010

The Commerce Department reported that new housing starts fell almost 6% in February but the market didn't pay much attention. Traders were focused on the FOMC meeting and their announcement this afternoon. The markets traded up on light volume before the FOMC announcement, then slowly declined most of the afternoon. Then the bulls came on strong during the last hour and drove the market indexes to strong finishes. RUT closed up over $5 to close at $680 while the SPX rose almost $9 to close at $1159. Trading volume was up 9% on the NYSE, 6% on NASDAQ, but fell below the 50 day moving average for the S&P 500. So the bullish trend appears to be intact, but it isn't clear if the institutional traders are strongly engaged; the trading volume seems too muted.

My Mar condor continues to benefit from time decay, but I decided to close my 680/690 calls this morning when the market opened up weak.  I left the Apr 660 calls in place until tomorrow. I will probably allow the put spreads to expire worthless. The April position is going to be nearing another adjustment decision point if this bull run continues; theta is still over double the position delta at this point. This continued bullish trend baffles me; I keep waiting for the other shoe to drop, but so far it just keeps moving on up.

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Written by Dr. Duke

Created: 15 March 2010

The markets seemed quiet and cautious as they anticipate the FOMC meeting tomorrow. Trading volume was down about 10% on the NYSE and the NASDAQ. The Empire State Manufacturing Index fell to 22.9 from last month's 24.9 value, and that may have contributed to the market weakness this morning. But the buyers returned to the floor late in the day and drove the markets back up. RUT traded as low as $669, but recovered to close at $674 for a loss of $2. The SPX closed at $1151, essentially unchanged after trading as low as $1141. Tomorrow afternoon's market is likely to be volatile with everyone trying to analyze the Fed's announcement and guess when this period of cheap money is likely to start coming to an end.

My Mar iron condor position continues to lessen its loss each day; today's theta decay is $815. I may be able to hold the loss this month to approximately one month's gain - not a great performance but it meets the goal of minimizing the losses in these extreme months of market movement. Our April condor now stands at a P/L of -$2,175 with delta = -$18 and theta = +$81. Our position is essentially delta neutral and the theta/delta ratio is excellent.

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Written by Dr. Duke

Created: 12 March 2010

The markets opened this morning and dropped several points, but then recovered and just traded sideways in very choppy fashion all day. A rally in the last half hour of trading brought the markets back to the unchanged mark. I take this last few minutes of trading as a bullish sign since traders did not appear to be taking money off the table for the weekend. Retail sales were reported up for February but the Michigan Consumer Sentiment report surprised traders with a drop for March when they were expecting a small increase. The dollar traded down today, but this didn't seem to fuel the market as it has recently. Trading volume pulled back a bit on the NYSE and NASDAQ, but it remained above average on the S&P 500. RUT closed at $677 down less than a dollar from the open. SPX closed right at its 52 week high of $1150, down $0.25 for the day. My March and April iron condors are largely unchanged at this point as the markets drift sideways. So the question remains: is this bullish rally stalled or just pausing for a moment? But we can only play the market move we see, not what we predict, so we wait.

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Written by Dr. Duke

Created: 11 March 2010

The markets opened weak this morning after being disappointed by the latest jobless claims data. New jobless claims fell by 6k to 462k this week, but economists are looking for a number less than 425k to suggest the beginnings of strong job growth. Over 4.6 million are on unemployment benefits, but this number excludes another 5.7 million who have exhausted their 26 weeks of regular benefits and are on extended benefits. Against that backdrop, the bullishness of this market is surprising. Today's trading volume was down 15-20% on the NYSE and the NASDAQ. But after chopping along down and sideways all day, the bulls took over in the last hour of trading and pushed the indexes to gains for the day. After a day of choppy low volume trading, RUT managed to set a new 52 week high at $677, while the SPX matched its high set earlier this year at $1150. So the pace of increase has slowed, but new highs are being set, although with lower volume.

My March and April condors are basically treading water at this point; the losses of the March position are slowing decreasing. The April condor is well hedged with May calls, and that is holding the losses in check. If the market would pull back a bit, we could remove those hedges. Or if the market traded up a bit, we would close and roll our call spreads upward. For now, we are caught in the middle without a move. So we wait and allow time decay to work its magic.

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Written by Dr. Duke

Created: 10 March 2010

The major indexes opened up and traded modestly higher this morning until around 11:15 ET, when selling pressure took over and drove the indexes down near their opening levels. But RUT and SPX recovered much of their losses to close modestly up for the day. The absence of a strong bullish case is evidenced by both SPX and RUT being unable to hold their highs yesterday and again today. However, in both cases, the indexes are making net gains, albeit modest. Jobless claims will be released tomorrow and both retail sales and the Michigan consumer sentiment numbers will be reported Friday; this economic news is likely to move the market. RUT closed up a little over $5 at $677, a new 52 week high. SPX continues to flirt with its 52 week high at $1150. It ran as high as $1148 today before closing at $1146, a rise of $5.

My March and April condor positions continue to trade in the red. Theta for the March position is now at +$268; this is nibbling away at the net losses for March each day. While the April condor is also sporting a net loss, the position Greeks are actually pretty good with delta = -$11 and theta = +$73. This position still has a reasonable profit potential, but I am just nursing March to a smaller loss. So we wait to see if this strong bullish run continues.

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Written by Dr. Duke

Created: 09 March 2010

The markets continued their surge upward most of the day but around 2:30 ET, profit taking took over. It may also be significant that the S&P 500 was approaching the 52 week highs set in January. All of this took place with a large surge in trading volume. Volume was up 25% on the NYSE and 17% on the NASDAQ. Trading volume for the S&P 500, at 4.5 billion shares, broke strongly through the 50 day moving average at 3.8 billion shares. RUT closed up $3 at $670 while the SPX ran as high as $1145 before settling back to close up $2 at $1140. For those of you who study candlesticks, you will see a classic shooting star on the RUT and SPX charts. All of this adds up to a strong possibility that the market is pausing to catch its breath here, if not pulling back a little bit. Given the recent run upward, a little profit taking appears to be very reasonable.

My March condor continues to swim in red ink; RUT's correction followed by this meteoric rise is conspiring to deal me my worst loss in some time. Today's whipsaw didn't help. The run upward today forced me to close my 680/690 call spreads. But after watching the market's action detailed above, I sold those spreads again just before the market closed. Of course, this is a risky move that I wouldn't recommend (the classic "do as I say, not as I do"). But it may help reduce some of the losses.

My April condor is faring well. I have had to roll up both the calls and the puts, but I left the May 680 calls in place as a hedge against a continued move upward. This has left this position almost perfectly delta neutral with a moderate sized positive theta to continue to drive profitability. The April 700 calls have a delta of 23 so we still need the May call hedges.

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Written by Dr. Duke

Created: 08 March 2010

Traders largely sat out today's trading session; volume was lower across the board. RUT and SPX both traded within a narrow range, $2 and $4, respectively. SPX closed at $1139, down twenty cents and RUT gained $0.05 to close at $667. The strong run of the markets over the past six sessions makes the market even more susceptible to any bad news. Even a minor pull back may spark a round of protective profit taking. However, there isn't much in the way of scheduled economic reports until Thursday's unemployment numbers, and then on Friday we have retail sales and the Michigan consumer sentiment report. So we may drift sideways for a couple of days.

I have rolled all of my call spreads up in both the March and April positions. I have also rolled the put spreads up from below to compensate for some of the losses rolling the call spreads upward. There is a trade-off in this maneuver: taking the profits on the put spreads helps offset some of the losses on the call spread side of the trade, but it also opens us up to a whipsaw if the market suddenly turns back. This is yet another example of the "no free lunch" principle.

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Written by Dr. Duke

Created: 05 March 2010

Wow! The market took off to the races after hearing that the unemployment level was unchanged at 9.7% and 36k jobs were lost in February. I guess the market was expecting really bad news. When one looks at the intraday charts you have to be impressed with the steady rise throughout the day - a very strong showing. I expected to see some profit taking, but it never happened. Trading volume on the NYSE and NASDAQ were both up today, but the S&P 500 continues to trade below its 50 day moving average. The SPX ran up $16 to close at $1139, close to its 52 week high at $1150. But small caps have been even stronger than the blue chips during this bullish surge; RUT convincingly broke through resistance to close at a new 52 week high at $666, a run of nearly $14.

The market bulldozed right through my March and April iron condors. March is shaping up to be my first loss since August. My adjustments on April are holding it in check so far, but I may have to roll some of those call spreads up next week. In fact, this market swing has been even more severe than the one in late July that set up that earlier loss. However, it is naive to think trading doesn't involve losses. Many people are always searching for the guru who never loses. The reality is that many of those gurus don't even trade. Successful traders limit their losses in months like this one to manageable amounts. As long as you don't lose more than you gained last month, you can keep the doors of your business open. Risk management is the name of the game!

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Written by Dr. Duke

Created: 04 March 2010

The markets traded in a narrow range today, held down by a stronger dollar and anticipation of tomorrow's unemployment numbers. Pending home sales dropped 7.6% in January, which surprised analysts who expected a 1% increase. Initial jobless claims dropped 29k from last week and continuing jobless claims also dropped 134k. This news appeared to push the market lower in the first hour of trading, but then it traded largely sideways until the final half hour. Then the markets moved up significantly to close with modest gains for the day; did someone leak the unemployment numbers? RUT closed at $652, up a little over $3 and the SPX closed above the significant $1120 level at $1123. Tomorrow will tell us whether these indexes have truly broken out from resistance. Trading volume was weak; it was flat on the NYSE, lower on NASDAQ and below average for the S&P 500. It appears the large players are still waiting for a signal to move.

Since my trading advisory service, Flying With The Condor™, began a few weeks ago, I will not be reporting daily on my condor trading. I will periodically update you on my positions and my track record. In the meantime, check out the Flying With The Condor™ service. It comes with a money back guarantee.

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Written by Dr. Duke

Created: 03 March 2010

The Challenger jobs report cited 42k jobs lost in February before the market opened this morning. This was viewed positively since it was the lowest monthly job loss number since 2006. As the market opened, the ADP payroll data report cited a loss of 20k jobs in February, the smallest decline reported by ADP in a year. The markets traded upward on the basis of this good (?) news until about 11:30 am ET. Then the markets slid the rest of the day to close essentially unchanged. RUT closed up about $1 at $649 while the SPX traded as high as $1125 before declining to close at $1119, a gain of less than a dollar. The FOMC Beige Book was released this afternoon and reported modest economic improvement across the country. Trading volume was up today on the NYSE and the NASDAQ but remains below average on the S&P 500. Notice how the SPX traded higher both yesterday and today but could not hold those intraday highs. That behavior was also true of the trading in RUT today. This makes me wonder if this bullish run that began in early February is running out of gas.

In the meantime, my wounded March condor limps along with a net loss of $3,460, delta = -$138 and theta = +$206. I have just about run out of options to salvage this trade any further, although we will achieve our goal of limiting any one month's loss to less than a month's potential gain. This position's loss will be steadily decreased as the time decay accelerates these last few days; but our best case scenario is for a small loss. The Apr condor is faring somewhat better but is in a weakened position after this recent run up in RUT. The P/L is -$955 with delta = -$138 and theta = +$206. The big difference with the Apr position is that we have a lot of time and possible adjustments remaining to salvage a gain from this trade.