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Traders started today on a positive track, bouncing back from yesterday's losses. But it didn't last long before the bears took over. But, after putting on my rose-colored glasses, I note that the bears couldn't really drive the market down much. SPX closed the day at $1316, only down a dollar. RUT lost $4 to close at $810. Trading volume remained lackluster as it has for weeks now. 2.6 billion shares of the S&P 500 traded today, still well below the 50 dma at 3.1B. Volume was down 1% on the NYSE and was up 4% on NASDAQ. So the SPX chart is looking more and more like a downward trend (closed at a new low for the month today).
My June iron condor on RUT stands at a P/L of +$2,216 with a delta = +$5 and theta = +$39. Both spreads are about two standard deviations OTM, even with the expanded volatility of the past couple of days. It may be tempting to close this position early at this rate, but both spreads are far OTM and time is on our side at this point in the trade.
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Some preliminary data from Europe and China suggest those economies may be slowing. When you add the European sovereign debt concerns, you get a market full of worries and understandably cautious about buying. These concerns also drove the dollar higher and this traditionally pulls the stock markets downward. The markets gapped down at the open and traded sideways from there. The major indexes closed off their lows for the day, but not by much. SPX dropped $16 to close at $1317 and RUT closed at $814, down $15. Trading volume was down; only 2.5 billion shares of the S&P 500 traded today, well below the 50 dma. Trading on the NYSE was down 14% and trading volume on the NASDAQ was up 1%.
If one draws the trend lines on the SPX chart for the down trend since May 2, today's action puts us either on or very close to that lower trend line. So we appear to be at the tipping point. If the broad markets dive lower tomorrow, we may be defining a new bearish trend lower. On the other hand, we will need some significant upward movement to decisively break-out of this downward trend. On SPX, this will require a close above $1345, $28 higher.
All of the May options expired worthless. My June RUT condor stands at a P/L of +$2,056 with delta = $0.50 and theta = +$54. I believe this theta/delta ratio sets a personal high - I have never had a position delta so close to zero. So now I watch to see if this market is headed lower, or will we just muddle sideways?
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The markets opened up positively this morning and steadily climbed all day, closing near session highs. SPX tacked on $12 to close at $1341. Not to be outdone, RUT gained $13 to close at $833. Volume continues to be rather low. Today's strong run involved 2.8 billion shares of the S&P 500 stocks, down from yesterday and still below the 50 dma. Trading volume was down 10% on the NYSE and was down 15% on NASDAQ. The FOMC minutes were released this afternoon, but didn't really offer any new insights to the committee's thinking. No other economic news of any import was released today.
My June iron condor on RUT stands at a P/L of +$1,956 with position delta = -$31 and theta = +$47.
I have had an interesting trade on AAPL during this past few weeks of a disappointing price chart from AAPL. In February, with AAPL at $355, I bought 5 contracts of the AAPL Jan 12 $350 calls. I later sold the Feb $360 calls against the position, then I rolled those out to March and the Mar $360 calls expired worthless. Then I sold the April $340 calls and rolled those to May $340. Now the cost basis of my LEAPS is $10.15 (assuming the May $340 calls expire worthless). Depending on the price action the next couple of days, I may roll the May calls out to June. If I assume the May calls expire worthless, then the Jan 2012 $350 calls could be sold for a 43% gain, whereas if I had bought AAPL stock, I would be down about 5% and if I had just held the LEAPS, I would be down 34% (ouch!). This illustrates the leverage (both ways) when using LEAPS for your long term bullish plays, but perhaps more importantly, the power of selling calls against that position during times of weakness.
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The dollar's strength, coupled with concerns about European debt, held the equity markets down today. SPX traded down $10 to close at $1333 and RUT traded down $6 to $829. The SPX settled at $1342.55 for May options and RUT settled at $831.14. Thus, the remaining 720/730 and 920/930 May RUT spreads from my condor have officially expired worthless. So the May position closed with a 7% gain and my condor trading is up 19% for the year; by comparison, SPX is up about 5%.
One can read the SPX price chart in two somewhat different ways. One would be to identify the trading range of $1320 to $1370 that SPX seems to be trapped in for the past month or so. An alternative view would draw trend lines along the tops and bottoms of the bars since May 1 and propose a new downward trend. A trader with the first perspective would be looking for a break-out either above $1370 or below $1320 to define a new trend to trade. The latter perspective would be looking for a break-out above $1345 to resume the bullish trend.
My June iron condor on RUT stands at a P/L of +$1,716 with delta = -$17 and theta = +$75.
Have a great weekend. It is finally warm in Chicago!
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The markets opened lower this morning and traded downward until around noon and then the bulls woke up and started buying, taking the markets back near the opening levels. SPX sliced through the 50 dma and dipped as low as $1319 before rebounding to close unchanged at $1329. RUT traded down and bounced off support at $815, closing down $3 at $820. All of this action occurred on higher trading volume levels with the S&P 500 stocks trading 3.1 billion shares, just below the 50 dma at 3.2B. Trading on the NYSE was up 10% and up 7% on NASDAQ. Many technical indicators are nearing oversold conditions, but the current bias appears to be downward. However, the fact that today's strong downward move didn't turn into a very ugly day has to be encouraging. Perhaps we have just expanded the lower band of our trading range?
Lower housing starts were reported for April (523k, down from 585k) and fewer building permits were issued in April (551k vs. 574k in March). Industrial production was flat for April, down from a 0.7% increase in March. Capacity utilization was almost flat at 76.9% in April vs. 77% in March. This economic data may have contributed to the weakness in the markets this morning. Some analysts believe the weakening of the dollar later in the day contributed to the market's rebound. But we may be reading tea leaves here, hoping to feel more confident that we have found the cause and effect relationship.
My June RUT iron condor at 690/700 and 900/910 stands at a P/L of +$1,716 with delta = -$14 and theta = +$60. This position remains delta neutral with a fair amount of safety margin to the upside (about 1.5 standard deviations) and a large amount of room on the downside (about 2.5 standard deviations). All in all, this is a difficult market to be trading now - unless you are delta neutral. But even then, the volatility can be a bit unnerving.
