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News that taxes won't be raised in 2011 was welcomed by the markets this morning, but the euphoria didn't last. The SPX traded as high as $1235 but was pulled back to a closing price of $1224 for a net increase of less than a dollar. RUT fared better (as usual of late), but also pulled back from its highs to close at $764, up $4. Trading volume jumped higher today with 3.9 billion shares of the S&P 500 stocks trading; trading on the NYSE was up 70% and volume was up 18% on NASDAQ. Some observers blamed the pull back on news of widening probes into hedge fund trading.
My Dec iron condor on RUT stands at a P/L of +$1,460, delta = -$130, theta = +$232. The Jan SPX condor stands roughly at break-even with delta = -$52 and theta = +$64. Did you notice GOOG? It has gapped up at the open for two days in succession... interesting.
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All of the major indexes were down or flat today. Two stand-out exceptions were the Russell 2000 (RUT) and the NASDAQ. The Standard and Poors 500 (SPX) index closed down $2 at $1223. SPX has been unable to break through the highs set earlier this year. By contrast, RUT continues to set new highs; it closed at $761, up $4. Trading volume was down across the board with 2.7 billion shares of the S&P 500 stocks trading; volume was down 9% on the NYSE and down 11% on NASDAQ. The dollar traded higher today and that tends to hold equities down. Some traders are waiting for resolution of the tax rate questions in D.C. Declining volume may also be indicative of traders beginning to back off for the holidays, although it seems a little early for that.
My Dec iron condor on RUT stands at a $2,040 gain with delta = -$88 and theta = +$172. The 790/800 calls are still pretty far OTM, but RUT keeping on climbing. The Jan iron condor on SPX stands at a P/L of -$979 with delta = -$78 and theta = +$80. The theta/delta ratio of approximately one-to-one tells us this position is on the verge of requiring adjustment or re-positioning. No significant economic reports are due until Thursday, so I don't expect much market movement for a couple of days. But who knows what global events might trip this market one way or the other? Will resolution of the tax hike questions from D.C. be a "sell the news" event or fuel for a rally (assuming tax rates stay low)? So the market moving news for the next few days may be out of Washington.
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Now we have two very strong successive bullish days in the market - what will happen tomorrow after the jobs report? Profit taking or a continued strong bullish run? The SPX tacked on $15 today, closing at $1222. RUT gained $8 to set a new 2010 high at $751. Volume remained strong, but approximately flat with the past two days in the market. 4.1 billion shares of the S&P 500 stocks traded, slightly less than yesterday but still above the 50 dma. Trading on the NYSE was down 2% and was also down 4% on the NASDAQ.
Initial unemployment claims increased by 26 thousand to 436k and continuing claims also increased from 4.217 million to 4.270 million. But this didn't seem to affect the markets. Pending home sales jumped by 10.4% in October, which is the largest month-to-month change in ten years. This buoyed home builder stocks and fueled the overall market as well.
My Dec iron condor on RUT stands at a P/L of +$1,260 with delta = -$72 and theta = +$214. In spite of RUT hitting new highs, the 790 calls remain one standard deviation OTM and have a delta of 9. I hedged my January iron condor on SPX today, resulting in a P/L of -$1,460, delta = +$16 and theta = +$20. Can this market make it three in a row?
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The jobs report this morning caused traders to pull back and reconsider their bullish stance. However, by the last half hour of trading, the bulls had reaffirmed their optimism and started buying in earnest. The SPX closed at $1225, up $3 on the day. By contrast, RUT traded in positive territory all afternoon, setting a new high for the year at $756, up $5. Trading volume was down with an 18% drop on the NYSE and an 11% drop on NASDAQ. Trading in the S&P 500 stocks dropped below its 50 dma. Economic data was mediocre to disappointing today, led by a disappointing jobs report. Small increases in payroll numbers were reported but much smaller than expected. In addition, the overall unemployment rate increased to 9.8%. Factory orders fell 0.9% and the ISM Services Index remained essentially flat at 55.0 (up from 54.3 in October).
While the futures dropped significantly after the jobs report was released this morning, the market slowly recovered throughout the afternoon. From my perspective, this looks like a bullish market that is not going to be easily dissuaded.
My RUT Dec iron condor stands at a P/L of +$1,980 with a position delta = -$67 and position theta = +$156. The 790/800 call spreads stand just outside of one standard deviation and we only have two weeks remaining, but RUT is making new highs every day. The Jan condor on SPX remains underwater with delta = -$76 and theta = +$80. The roughly one-to-one ratio of theta to delta warns us that this position is weakening and nearing the point of either adjustment or repositioning. December is historically a slow, largely sideways month as everyone starts to take off for the holidays. So this bullishness of the past few days may be tempered somewhat over the next couple of weeks. However, 2010 has been anything but typical so far.
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The volatility of recent markets continues to amaze me. The major indexes all traded up to within striking distance of their 2010 highs within just a few hours of trading this morning. SPX closed up $26 at $1206, close to its April high of $1217 and its November high of $1223. RUT closed at $743, up $16. This actually exceeded the high closes in April at $742 and November at $737. Trading volume was still high, but slightly off of yesterday's record levels. 3.7 billion shares of the S&P 500 stocks traded today, down from yesterday but still above the 50 dma. Trading was down 9% on the NYSE and down 8% on NASDAQ.
The economic news was modestly positive with the ISM manufacturing index at 56.6 for November, about flat with October. Construction spending was up 0.7% on October, but economists were predicting a decline of 0.5%. ADP reported an increase in private employment of 93 thousand jobs. The FOMC released their Beige Book this afternoon, but it had no effect on the markets one way or the other. The volatility index dropped about 10% today.
My Dec condor on RUT stands at a P/L of +$1,320 with position delta of-$27 and position theta = +$199 with 15 days left to expiration. The 790/800 call spreads appear to be safe enough for now with a delta of 7, but a bullish run like we had in mid-Sept to mid-Oct could get there. The Jan condor on SPX stands at a P/L of -$1800, position delta = -$34 and position theta = +$95. The delta of the SPX $1280 calls hit 16 today so this position may require adjustment soon.
