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Trading continued listlessly today in very low trading volume and was unexciting with the exception of the last few minutes. Sellers rushed into the market in the last 15 minutes of trading today, driving the major indexes down. However, buyers pulled the SPX back up to the unchanged mark at $1258. But RUT didn't outperform the SPX today as it has all year. RUT closed down $6 at $784. The benchmark S&P 500 index gained 13% in 2010 and NASDAQ gained 17%, but RUT gained 25% this year, an impressive gain for a broad based market index. One of the key stocks powering the NASDAQ run was Apple Computer, gaining 53% in 2010.
There was no significant economic news today, but next week has a full economic report schedule, culminating in the jobs report next Friday. Traders' reaction to that report may set the tone for next year's trading. The bears can make a strong case for a coming correction, citing basic economic issues both here and in Europe. In addition, many technical indicators suggest an overbought market. But one of the cardinal rules in this business is, "Don't fight the Fed", and the Fed is continuing to fuel this market via their quantitative easing program. Accordingly, I closed my GS iron condor today for a 17% gain. The financials have led this December rally and if the bull market is to continue in January, that GS call spread could be in trouble. Better to lock in a nice gain rather than risk a loss. This position was recommended in one of my Trading Group meetings; those recommendations gained 45% in 2010. You can examine the trading record in detail by downloading the file in our Free Downloads section of the web site.
My Jan iron condor on SPX continues to work off the red ink from repositioning a couple of weeks ago. The position delta = -$81 and theta = +$172, so the large positive theta will continue to work in our favor, but the call spreads are just one standard deviation OTM while the put spreads are two standard deviations OTM. With 20 days left to expiration, we are still exposed to a continued bullish run on SPX. The Feb RUT 680/690 860/870 condor stands at -$500, delta = -$24 and theta = +$89. In the short time I have been in this trade, the IV of the options in these spreads has increased about 3 points. Thus, the position remains underwater even though the spreads are well OTM. This is an excellent illustration of the negative vega of the iron condor spread.
My new book, No Hype Options Trading, is now available on Amazon. I will not be carrying it on my Online Store because I can't compete with Amazon's pricing (no wonder Borders is going out of business!), so order a copy on Amazon.
Thanks to all of you who have supported me this year. You have my best wishes for a joyful, healthy and prosperous new year. Happy New Year!
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We received some unequivocally good economic news today, but the markets were not impressed. Does this signal the long awaited correction is imminent? Or is no one left in the offices to react to the news?
SPX dropped $2 to close at $1258 and RUT essentially closed unchanged at $790 (down $0.52). Trading volume fell again today with 1.4 billion shares of the S&P 500 stocks changing hands. Volume fell 2% on the NYSE and fell 4% on NASDAQ. Initial unemployment claims fell to their lowest level in about two years at 388k, while continuing unemployment claims increased by 57k to 4.1 million. The Chicago PMI came in at 68.6, an increase from last month's 62.5 and pending home sales for November increased 3.5%. But this good news wasn't enough to move this holiday market. I am not reading too much into that because so few traders are in the offices at this point in the holidays.
My Jan SPX iron condor improved its position somewhat with a P/L of -$1139, delta = -$90 and theta = +$122. The Feb iron condor on RUT stands at -$500, delta = -$27 and theta = +$87. Will anyone be left to trade tomorrow?
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The markets meandered sideways on very low volume today. Minimal economic news was reported. The Case Schiller Housing Price Index fell 0.8% in October. The Conference Board Consumer Confidence Index dropped to 52.5 in December from 54.3 in November. This surprised analysts who were looking for a value of 56.1. But none of this news seemed to have much effect on the markets. The SPX gained $1 to close at $1259 while RUT lost $3 to close at $789. Obviously, most traders are on vacation. My Jan SPX iron condor position is essentially unchanged at a P/L of -$1479 with delta = -$100 and theta = +$116. The Feb RUT iron condor stands at a P/L of -$600 with delta = -$29 and theta = +$80. Enjoy the relaxing week; presumably, the action returns next week.
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The markets traded modestly higher today on low trading volume, but a late sell-off in the last few minutes of trading erased most of the gains. SPX closed at $1260, up about $1. RUT gained less than a dollar to close at $790. Trading in the S&P 500 stocks actually declined from yesterday's already low levels to 1.5 billion shares. Trading dropped 7% on the NYSE and dropped 1% on NASDAQ.
My Jan SPX iron condor stands at -$1799 with delta = -$104 and theta = +$145. This position is beginning to be pressured on the call side with delta of the $1300 calls at 16. The Feb iron condor on RUT stands at a P/L of -$600 with delta = -$38 and theta = +88. This condor is well positioned so far with the $860 call delta at 12 and the delta of the $690 puts at 11.
The steady push upward by this market even during these low volume holiday weeks is remarkable. It certainly appears that next week may usher in a strong bull market to begin the new year. But the universal bullish attitude I am hearing and reading worries me from a contrarian perspective. However, this may be the classic, "Don't fight the Fed" situation. QE II does appear to be pushing this market higher. Whether you or I agree with the Fed's tactics is really irrelevant. I have a couple of stock condors and one bearish trade in my directional portfolios. I think I may close them this week before everyone comes back from the holidays and begin to push this market in earnest.
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China raised interest rates to retard inflation and traders reacted negatively to this news because it raised concerns about the global economic recovery stalling. However, the markets slowly traded upward most of the day and all of the major indexes finished in positive territory except for the Dow. SPX closed up less than one dollar at $1258. RUT gained $3 to close at $792. Surprisingly, trading volume declined even further from Thursday's low pre-holiday volume. About 1.6 billion shares of the S&P 500 stocks traded. Trading declined 24% on the NYSE and dropped 14% on NASDAQ.
My Jan SPX iron condor stands at a P/L of -$1,979 with delta = -$91 and theta = +$137. The Feb RUT iron condor stands at a P/L of -$700 with delta = -$36 and theta = +$83. It has been surprising how the indexes continue to climb on such weak volume. Bullishness is common, which concerns me. The big institutional players do not appear to be "in the game", so the question remains as to which way they will push this market when they return in volume.
