- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1710
The markets seemed to calm down significantly today. Trading volume dropped to 4 billion shares of the S&P 500; that remains above the 50 dma, but is well below the peak at nearly 8 billion shares on August 8. In addition, the trading range dropped back significantly. SPX closed at $1179, down $6, but its trading range was about $18, well below the $50 - $80 ranges of the last few days. RUT closed at $698, down $2. The drop in initial unemployment claims yesterday may have had a calming effect as that data was digested. It is interesting that so many analysts on CNBC have compared the past few days to the drops in 2008 and 2009. But if you review those charts, you will find those were orderly markets compared to the past few days. We have experienced 5 of the past 7 trading sessions with swings in the SPX of $50 or more. And consider this past week: we dropped $80 on Monday, gained $50 on Tuesday, lost $50 on Wednesday and then gained $50 on Thursday - you will be hard pressed to find anything similar in the history books. Today's $18 range on lower volume was a breath of fresh air.
My Aug condor is slowly working off its loss; it is now $1700 underwater with a delta of -$31 and theta = +$362. The Sept condor stands at a P/L of -$360 with delta = -$20 and theta = +$137 (both with 20 contracts). If (big if) this market crisis is over, our condors have survived well; the Aug condor is likely to close within our goal of minimizing the loss to less than a good month's gain, and the Sept position is sitting delta neutral with a good shot at a healthy profit for the month. But we'll see; the game isn't over quite yet. In any case, I am ready to relax; enjoy your weekend.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1660
The markets opened down this morning and tried to make it back up to yesterday's bullish close, but failed; on the other hand, the bears tried to push the indexes back down to new lows, but they also failed. But the bears made another push lower during the last couple of hours of trading, nearly making it to the lows of the day. If you study the SPX chart for the past couple of weeks since this carnage began, the days where the market closed at the lows of the day are the scary days, especially on increased volume (look at last week's Tuesday and Thursday and this past Monday). But yesterday the bears pushed the market down, but could not hold those lows - that presented a glimmer of hope; but the late trading today was a bit disconcerting. The steady decrease in trading volume is hopeful, but that may be wishful thinking.
SPX closed at $1121, down $52 while RUT lost $36 to close at $660. Trading volume remains relatively high, but declined from Monday and Tuesday's levels. 6.5 billion shares of the S&P 500 traded, but this remains well above the 50 dma at 3.2 billion shares. Trading volume was down 10% on the NYSE and was down 11% on NASDAQ.
Today's market weakness appeared to stem from rumors of France losing its AAA bond rating. And that just underscored concerns about the European Union in general. After the severe losses of the past week, traders are nervous and they hit the exits without stopping to question the veracity of any rumors they have heard. I'm not criticizing; I am just pointing out one of the reasons we are seeing extreme volatility intraday in the markets.
I am continuing to adjust my Aug and Sept iron condors on RUT to avoid being run over by this market. The Aug RUT iron condor has put spreads at 600/610 and call spreads at 750/760. Its current P/L stands at about -$3,500 with delta = +$28 and theta = +$331. Both spreads are about 1.5 standard deviations OTM; at this point, we are only minimizing our losses in this position. The Sept condor consists of the 600/610 puts and the 780/790 call spreads and has a P/L of -$480, delta = +$15 and theta = +$92.
It appears as though the markets are beginning to calm down a bit, although the late trading today worries me; let's hope we don't have some significant world event/announcement that catches the markets off guard. It is a very fragile time.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1631
Friday's price action suggested that we might have found the bottom, but today's market convinced us of the foolishness of that thinking. SPX plunged $80 to close at $1119; Russell (RUT) gave up 8% of its value in one day: down $64 to $651. We used to think of market corrections to be of the order of 8%; we lost that much just today. The markets paused in the afternoon as President Obama spoke, but then the market averages turned over and headed lower, closing at the lows of the day. Obama still doesn't get it; he continues to talk of tax increases and blames those stubborn Republicans for everything. After traders heard that, they knew nothing is going to change in Washington any time soon and they resumed the panic selling. Trading volume was huge with 7.3 billion shares of the S&P 500 changing hands. Volume was up 10% on the NYSE and up 6% on NASDAQ. In fact, trading volume has consistently increased every day since last Monday. Volatility is also on the rise; the VIX closed at 48% today. VIX has doubled since August 1.
There were no economic data reports today, but even if there had been, they would have been overshadowed by the Standard and Poors downgrade of the U.S. debt. S&P officially announced its downgrade Friday after the market closed. They previewed their rating rationale with the White House, whose analysts discovered a two trillion dollar mistake in their calculations. But that didn't phase S&P; they corrected their numbers and issued the downgrade as planned. It is difficult to imagine an organization contemplating such an historic move as removing our AAA bond rating, and the analysis and calculations move through the organization with a huge error in the calculations. And when the error was discovered and acknowledged, they move forward anyway - sounds like my favorite Dilbert cartoon. And don't forget: these are the people who told you that buying those mortgage backed securities were perfectly safe.
As you might expect, I have been scrambling to protect my August and September iron condor positions. I have hedged both positions with long puts and then closed my put spreads and rolled them down. Then I opened new call spreads to effectively re-position my condors. Now the Aug position consists of the 610/620 put spreads and the 750/760 call spreads with position delta = -$47 and theta = +$136. The Sept position consists of the 610/620 put spreads and the 780/790
call spreads with position delta = -$58 and theta = +$175. Both positions are in red ink for now, but have the potential to still make a reasonable profit before expiration. In fact, the Sept position has the potential to make as much as $6k on 20 contracts simply because the put hedges have appreciated so much the last few days.
The FOMC meets tomorrow, so all eyes and ears will be tuned to whatever comes out of that meeting. In the meantime, either hedge your positions or sit safely on the sideline. It's crazy out there.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1646
The markets bounced back a bit this morning, but were very volatile all day. SPX set a new low for the past few weeks at $1102. The major market averages had pulled back to their starting points by the time the FOMC report was released. It is hard to say what the market's early reactions to the report were, given the extreme volatility all afternoon. But the last hour of trading was decidedly bullish. SPX closed up $53 to $1173 and RUT gained $45 to close at $696. One surprising aspect of the FOMC announcement was language to the effect that interest rates aren't likely to rise until the middle of 2013; it is very unusual for the Fed to issue a time line for interest rates. This was probably their attempt to calm the markets. Trading volume remains high, but it did pull back a bit from yesterday's highs; 6.8 billion shares of the S&P 500 traded today; trading volume was down 4% on the NYSE and down 5% on NASDAQ.
My Aug and Sept condors continue to struggle in the midst of this market turmoil; both positions are underwater. I removed the put hedges today; those gains are crucial in giving both of these positions a shot at profitability; in fact, the Sept condor could make a larger than normal profit. But who knows what is going to happen at this point? All we can do is trade what the market gives us.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1672
The jobs report this morning prompted a positive market opening, but it didn't last long before bears were selling strongly and market observers were spooked. For the last two days, the price action has taken the indexes into "uncharted territory" - yes, analysts were pulling up various old support levels and so on. My point is that most of the support levels we traders were focused on were simply passed by without even a pause. It left many traders mentally disoriented. SPX opened and ran up to $1218 before plunging to $1168. Then SPX started recovering in the early afternoon and closed essentially at its open at $1199, down less than a dollar on the day. RUT was much more bearish, closing down $12 to $715.
The non-farm payroll report cited a gain of 117k jobs, up significantly from last month's anemic rise of 46 thousand jobs. This came as a surprise to most analysts and boosted the market, but only momentarily. The unemployment rate dropped a bit to 9.1% from 9.2% - I'm not sure if the underlying data are accurate enough to make that difference meaningful, but at least it is in the right direction. Next week, we have the FOMC meeting and traders will be even more attentive than usual, given this week's carnage in the markets. Traders will also be watching European bank and finance ministers this weekend, searching for reassurance that the European debt problems don't cascade into global financial issues.
I rolled my Aug 670/680 put spreads down to 650/660. That reduces the profit potential for the Aug position, but we still have the potential for a reasonable gain. The hedge for the Sept put spreads is holding that position's P/L in check very well. So our potential gains in the Sept position are still largely intact.
This has been a crazy week in the markets. Let's all collectively relax and enjoy the weekend. I'm going to start with a nice dinner with family and friends.
