Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 16 January 2010

The complete record of the trades in the account being traded in this blog from May 29, 2009 to date is displayed below. The account began with $40,238 and today's balance is $55,427, a total gain of 38%.

Dr. Duke practices what he preaches.

Details

Written by Dr. Duke

Created: 15 January 2010

Intel and J P Morgan reported better than expected earnings last night, but that didn't seem to be enough for the markets today. The Consumer Price Index only increased 0.1% in December and the Consumer Sentiment Index was essentially unchanged. So the mystery is why did the profit taking take hold today? Trading volume was over 1.4 billion shares on the NYSE, but option expiration probably accounts for much of that volume. The markets opened down and traded down until just before noon, when buyers returned to the market and recovered some of the losses. RUT closed down $8 at $638 while the SPX dropped $12 to $1136. However, today's move leaves RUT and SPX firmly within the sideways channel they have been in since the last week of December, so a new correction or downward trend has not been defined by today's move.

My Feb RUT iron condor now stands at +$1,080 with a position delta of -$30 and theta = +103. Next week will be filled with earnings announcements, so it will be interesting to see if the market has any strong reactions as those play out.

Details

Written by Dr. Duke

Created: 14 January 2010

The markets traded down for the first hour or so this morning, and then strengthened and slowly gained throughout the afternoon to close with modest gains. The relatively low trading volume of the past few sessions continued today. Retail sales decreased in December and unemployment claims rose, but the market seemed unconcerned. RUT closed up $3 at $646 and the SPX traded up $3 to close at $1148. Many economic reports are due tomorrow; coupled with expiration Friday that may make for a volatile market.

When the market appeared weak this morning, that looked good for my January condors because I didn't want to close my 660/670 calls (I was trying salvage as much profit as I could from a difficult month). But, as the markets strengthened, I closed the 660/670 calls for $0.10 and allowed the 580/590 put spreads to go into expiration to expire worthless. Thus, my low probability RUT iron condor finished essentially at breakeven with +$370 (7%) and the high probability RUT condor finished at +$2,240 (14%).

The Feb RUT iron condor stands at a P/L of +$760, delta = -$66 and theta = +$103. This blog trading account is now up 38% since we started this experiment last May.

Details

Written by Dr. Duke

Created: 13 January 2010

The markets dropped at the open this morning, but before the first hour of trading was over, the indexes turned upward and steadily rose all day long.  The major indexes recovered all of yesterday's losses, and the Dow exceeded the highs for the new year set on Monday. RUT and SPX closed just shy of their Monday highs. However, the low trading volume continues, so it is hard to place too much weight on today's gains. It appears the markets are trapped in a narrow trading range without sufficient conviction to break out in either direction.

My short term RUT January iron condor stands at a P/L of +$290, delta = -$35, and theta = +$424, while the long term (51 days) RUT Jan iron condor stands at a P/L of +$2,080, delta = -$70 and theta =+$848. The call spreads remain just outside of two standard deviations OTM. Unless RUT trades downward tomorrow, I will close those spreads rather than allowing them to go into expiration. The Feb RUT iron condor closed at a P/L of +$880, delta = -$57 and theta = +$94.

Details

Written by Dr. Duke

Created: 12 January 2010

The markets opened down a bit this morning and then started trading steadily downward from about 11:30 ET through the rest of the day. Even a weak dollar didn't seem to help. Some analysts attributed this to Alcoa's disappointing earnings report last night, but that just seems like rationalization to me. RUT fell nearly $9 to close at $636 while the SPX closed at $1136, down almost $11. On the positive side, trading volume was below one billion shares on NYSE where the average trading volume last year was about 1.4 billion shares, so this doesn't appear to be a major institutional sell-off.

This move downward positioned all of my condors back close to delta neutral positions. The low probability Jan iron condor on RUT stands at a P/L of +$320 with delta = -$5 and theta = +$158. The high probability Jan iron condor on RUT stands at a P/L of +$2,140 with delta = -$10 and theta = +$315. The call spreads of these condors now stand at 2.5 standard deviations OTM while the put spreads are over four standard deviations OTM. If these spreads remain outside two standard deviations OTM, I will allow them to expire worthless.

Details

Written by Dr. Duke

Created: 11 January 2010

The futures suggested a strong market before the open this morning, but that didn't materialize as stocks largely traded sideways all day. There isn't much news to move the market this week; Alcoa announces earnings this evening, but the earnings reports likely to move the market don't begin until next week. Alcoa was one of only a few stocks to move up in today's market. RUT closed unchanged at $644 while the SPX inched up $2 to $1147.

My short term condor for January has almost moved into the black with a P/L of -$140, delta = -$73 and a theta of +$313. The Jan longer term or high probability condor stands at a P/L of +$1,220 with delta = -$145 and theta = +$626. These positions are enjoying huge theta decay at this point! Our Feb RUT iron condor stands at +$700, delta = -$42 and theta = +$85. Boring markets make for happy iron condor traders.

Details

Written by Dr. Duke

Created: 08 January 2010

The markets traded sideways until the last hour of the day, when they tacked on some minimal gains once again. The S&P 500 (SPX) closed at $1145, up about $3 and the Russell 2000 Index (RUT) closed up less than $3 at $645. The unemployment report this morning didn't move the market one way or the other; the unemployment rate stayed at 10%, which might have been regarded as good news in a "less bad" sort of way, but over 85,000 non-farm payroll jobs were lost, far more than the 8,000 that were expected. VIX continues to drop, closing today just above 18%. Volatility hasn't been at these levels since the summer of 2008. Since iron condors are classic negative vega positions, this is beneficial for those positions.

This sideways drift for RUT has been helpful for my Jan iron condors that are struggling to move into positive gain territory. My low probability, or short term condors have been handicapped by the adjustments made several weeks ago when the market bumped up. This condor now stands at a P/L of -$480, delta = -$97 and theta = +$160. Normally, I would have closed the 660/670 call spreads today, since they are right at one standard deviation OTM, and my rule is to close spreads on the Friday before expiration when they are within two standard deviations. But I am trying to salvage a small gain out of this trade. The delta of my short 660 calls stands at 17. So I will continue to hold this position into next week to attempt to get closer to a breakeven or the maximum possible gain of $470.

The high probability RUT iron condor has moved into the black, and stands at a P/L of +$540, with a delta of -$195 and theta of +$320. Theta for the overall position of both condors is nearly $500 per day. I am banking on continued subdued market moves to allow this theta to work for me. This is the classic, "do as I say, not as I do" situation. As we move closer to expiration, it makes it easier to take this risk. Stay tuned.

Details

Written by Dr. Duke

Created: 07 January 2010

The markets had another lackluster, largely sideways trading day. RUT traded up in the last hour to close at $642 while the SPX traded up almost $5 to close at $1142. The dollar traded up strongly and that probably weighed on the market. The strong bullishness during the last hour appears to show confidence in the unemployment numbers due in the morning. It seems as though all of the talking heads and news outlets are singing the same song: something to the effect that we shouldn't expect good news; just less bad news will be welcome; the recovery will be slow, etc. So barring a large unexpected jump in the unemployment rate, the market should take the unemployment report in stride. It is a little bit of a concern when everyone seems to be in optimistic agreement; should we worry that a correction is near?

My short term Jan iron condor is still underwater at-$580, delta = -$91 and theta = +$145. The long term iron condor for Jan stands at +$340, delta = -$182 and theta = +$290. My Feb RUT iron condor stands at -$140, delta = -$51 and theta = +$94. Tomorrow should be interesting.

Details

Written by Dr. Duke

Created: 06 January 2010

The markets opened and traded without enthusiasm for either direction up or down; trading remained at low volumes and the markets were essentially unchanged; RUT closed at $638, down less than a dollar and the SPX dropped less than a dollar to close at $1137. The ADP payroll report for December reported a loss of 84,000 jobs - not good, but better than the loss of 145,000 in November. The dollar traded weaker today, but that didn't move the equity markets. Release of the FOMC minutes did not stimulate any move whatsoever.

I added another ten contracts to my Feb RUT iron condor with 560/570 puts at $0.75 and 690/700 calls at $1.03. The Feb condor stands at a P/L of -$200, delta = -$44 and theta = +$92. We now have a total credit of $3,740 for our February position. The Jan low probability condor stands at -$430, delta = -$57 and theta = +$138 while the Jan high probability condor stands at a P/L of +$640, delta = -$115 and theta = +276. So we muddle sideways for now.

Details

Written by Dr. Duke

Created: 05 January 2010

Pending home sales for November decreased 16%. This news eclipsed more favorable news of factory orders increasing 1.1% in November. The markets traded in choppy, sideways fashion all day. RUT closed down $2 at $638, while the SPX closed at $1137, up $4. Trading volume remains below the averages of 2009, although up almost 50% from the past couple of holiday weeks. Most of the talking heads appear to be predicting a bullish 2010, but it appears to me that the economic news will most likely continue to be positive, but indicative of a slow recovery - not the kind of news that is likely to fuel a strong bull market run.

I began my February RUT iron condor position today with 10 contracts of the 690/700 calls for $1.10 and 560/570 puts for $0.86. I will add to that position over the next few days, perhaps even into next week.

My low probability condor for January is still underwater, but the large positive theta is beginning to pull it up; the P/L is now -$730 with delta = -$69 and theta = +$151. The high probability condor has now moved slightly into the black at +$40, delta = -$137 and theta = +$302. Barring any strong price moves, the $450/day of theta decay will continue to help these positions.