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The markets appear to be a nearly balanced tug of war these days between the bulls and the bears. The bulls seem to have the edge, but just barely. As oil nearly hit $109/bbl and gold hit a new high at $1467, the markets oscillated sideways and slightly higher. SPX closed up $3 at $1336 while RUT set a new 52 week high at $854, up $1. But SPX has yet to break through its high of $1343 set in February. In fact, the last three trading sessions on SPX have displayed various versions of the doji candlestick - the classic sign of indecision; neither the bulls nor the bears can quite take control.Trading volume continues at fairly muted levels. 3.1 billion shares of the SPX traded today, up a bit from yesterday but still below the 50 dma. Trading volume rose 4% on the NYSE and was up 3% on NASDAQ.
My May iron condor on RUT is cruising along pretty much unchanged with a P/L of -$1,401 and delta = -$2 and theta = +$37. Our adjustments are holding our losses to a reasonable level while we give the market some time to trade sideways or even pull back a bit. The delta of our $890 calls dropped to 26. At times in the market like these, I appreciate my delta neutral positions; I don't find myself worrying about them as much as my directional trades. Unemployment claims will report tomorrow; we'll see if that tips the scale one way or the other.
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The markets traded up this morning, but turned over about 1 pm ET and headed south. SPX closed unchanged at $1333, but RUT continues to set new highs with a $4 gain today to close at $853. Trading volume was mixed. Only 2.6 billion shares of the S&P 500 traded, up slightly from yesterday but well under the 50 dma at 3.4B. Trading volume was up 8% on the NYSE and also up 15% on NASDAQ. The only economic data reported today was the ISM Services Index for March at 57.3, down from last month's 59.7. The minutes from the last FOMC meeting came out today, but didn't seem to have much impact on the market (the broad decline began about an hour before the release of the minutes).
AAPL slid in early trading because its weight in the NASDAQ 100 Index (NDX) is being reduced in the latest rebalancing, but it recovered most of the decline before the close. GOOG took it on the chin due to rumors of an upcoming FTC investigation.
Given RUT's steady rise, I decided to apply additional adjustments today to the May iron condor on RUT. I rolled some of my 890/900 call spreads up to 920/930. This improved the Greeks of the position markedly with position delta = +$4 and theta = +$45. Many iron condor traders use the position delta as the trigger for their adjustments. For example, if your position delta = -$100 and RUT runs up $6 tomorrow, that will translate into a loss of $600 on the position, assuming other factors are constant, which they aren't. But it gives us an idea of our position's risk due to price movement. My objective with the adjustments is to keep delta at levels consistent with my risk tolerance while theta remains large and positive.
I wonder what surprises this market will bring tomorrow? It is interesting that RUT is setting new highs every day and SPX has yet to break the highs it set back in February. Many technical traders are starting to worry that a classic double top is being formed by SPX (a bearish reversal). But this market has proven difficult to predict.
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The markets liked what they read in the jobs report this morning and traded up strongly through most of the day. But the major indexes gave back much of their gains in the last hour or so of trading. SPX closed at $1332, up $7 after trading as high as $1338 earlier in the day. RUT set another 52 week high at $847, up $3, after trading as high as $851. Trading volume was flat to down with three billion shares of the S&P 500 trading, well below the 50 dma. Trading volume was down 7% on the NYSE and up 11% on NASDAQ.
216k new jobs were added in March according to the US Nonfarm Payroll Report; this was up from the 194k reported for February. The unemployment rate dropped 0.1% to 8.8%. The ISM index reported out essentially unchanged for March at 61.2 (61.4 last month).
Two things concern me about this market: 1) the fact that the bulls could not hold the highs today, and 2) the continued anemic trading volume. I have to continue to play what the market gives me, but this market seems weak, even as it makes new highs.
I closed the call spreads of my Apr iron condor on RUT today during the late afternoon sell-off. Assuming the Apr 700/710 put spreads expire worthless (that appears to be a safe bet), we will book a gain of $2,220 on 20 contracts or 13% on the capital at risk. This week, I became concerned that this market might just continue to climb upward and having two weeks left until April expiration, I decided it was prudent to close this condor early while we could confirm 93% of the maximum potential gain of $2,400.
The May condor is standing essentially unchanged at a P/L of -$1,240 with delta = -$22 and theta = +$54. The Jun $880 calls are doing their job, hedging our losses and buying us time for the market to pull back. If the market continues higher and forces me to roll the call spread upward, those June calls will continue to reduce our losses. The trick to managing iron condors is not making money every month because you have placed the spreads so far OTM; it is minimizing the losses when they come. Because they will come.
Have a great weekend.
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The markets opened up a bit this morning but then traded sideways and downward for the balance of the day. The last hour of trading saw a resurgence of buying that brought the averages back near their starting points. SPX closed unchanged at $1333 but RUT set a new high at $849, up $3. Trading volume was way down with 2.5 billion shares of the S&P 500 stocks trading today. Today's trading volume, together with trading on March 28, are the lowest trading levels this year. Today was a slow day for economic news and that may have contributed to the sluggish markets. The VIX increased a bit to close at 17.5%. I have seen several reports of money is flowing into equities, but we have had very few strong volume days; a lot of funds must be carrying large cash balances. At best, this is a nervous bull market; at worst, it is a market on the edge of reversal.
The adjustments on my May iron condor on RUT are working well, holding our losses to a minimum while we wait out this market. Our position now stands at a P/L of - $580, delta = -$16 and theta = +$41. We will eventually be forced to either roll our call spreads upward or remove our hedge positions. But, in the meantime, we are buying time to see which trend develops.
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The markets were very choppy today, trading sideways with modest volume. The major indexes ended the day in mixed fashion. SPX lost $2 to close at $1326 while the RUT set a new 52 week high at $844, up $3. RUT is nearing the highs of 2007 at around $860. SPX appears to be struggling to break through the resistance around $1330 set in early March as the correction began. Trading volume was modest with 3.0 billion shares of the S&P 500 trading, but this is still well below the 50 dma at 3.5B. Trading volume rose 6% on the NYSE and increased 4% on NASDAQ.
Initial unemployment claims were essentially unchanged this week at 388k (down 6k). Continuing claims dropped 51k to 3.7 million. The Chicago PMI reported at 70.6 for March, down slightly from last month's record 71.2. Factory orders fell 0.1% while analysts were expecting a 0.4% increase. This combination of tepid economic data coupled with concern over tomorrow's jobs report served to hold back traders from taking any aggressive positions.
My April iron condor on RUT was essentially unchanged at a P/L of +$2,180 with delta = -$15 and theta = +$39. Our adjustments on the May condor are holding the losses steady for the moment as the RUT squeezes our call spreads; the position's P/L = -$1,460, delta = -$14 and theta = +$59. Delta of the 890 calls has increased to 21. If RUT continues making new highs, we may have to reposition this condor soon.
