That is the question being debated today. Yesterday's huge decline spooked traders, especially after the S&P 500 index broke through support at $1600 and plunged in afternoon trade. My read, for what it's worth, is that traders have been working in an unfamiliar environment for the past several years. They know the FOMC is and has been supporting the market, but that is a new and unprecedented factor to consider in their trading strategies and analysis of the markets. This is uncharted territory. Add on this incredible rally since mid-December and traders start to get nervous about losing those big gains. Hence, we have everyone overly focused on Bernanke and the FOMC this week. I would argue nothing new was said, but once a few traders started pulling their gains off the table, it started a panic run for the exits. In a strange environment where I have little or no experience to draw upon, I can reasonably conclude that a safe course of action is to go to cash and do it early.

The futures were positive this morning, but weakened as the market open drew closer. Trading was choppy all day. SPX managed a small gain of $4 to close at $1592 and RUT gained $3 to close at $964. SPX managed to get close to resistance this afternoon, trading as high as $1599. The VIX dropped 1.6 percentage points today, closing at 18.9% after running as high as 20.9% (yesterday's VIX was over 21% at one point). This drop in VIX was reassuring and serves as at least one data point suggesting the worst is over. I am inclined toward the view that we will see a choppy sideways market for the rest of the summer. The basic economic data have not been stellar, but they are slowly improving. And Bernanke has made it clear that stimulus will be withdrawn only as stronger employment data are reported. So the sky isn't falling.

Trading volume was huge today, due to quadruple witching: the simultaneous expiration of stock index futures, stock index options, stock options, and single stock futures. These four product expirations occur together once each quarter. Over 4.1 billion shares of the S&P 500 stocks traded today; trading on the NYSE increased 46% and volume increased 35% on NASDAQ. The negative trading earlier this week probably also contributed to the volume spike today as people bailed out of positions this morning.

My June iron condor on RUT at 890/900 and 1030/1040 will expire worthless tomorrow for a gain of 5.2%. RUT's settlement price is $964.44. I hedged the call side once and rolled the call spreads higher twice and rolled the put spreads higher once during this position's life, so we did well to salvage a small gain. My July condor stands at a net gain of $1,260 or +7.5% with position delta = $32 and position theta = +$74 on 20 contracts. For those of you trading SPX, it settled at $1599.93, an unusually large move from yesterday's close at $1588.19. The average differences between Thursday's close and settlement last year were $5.95 on SPX and $4.46 on RUT. So far this year, those differences are $4.69 and $2.42, respectively. I would not recommend carrying short index option spreads into expiration that were anywhere near that close to the index price, but there is the data, for your consideration - different stokes for different folks.

Enjoy the weekend.