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The markets traded largely sideways today but the major indexes did manage to close modestly higher (with the exception of the Dow). SPX finally broke through $1230 and held it into the close at $1233, up $5. RUT made another high (wow) at $768, up $4. Trading volume was flat to slightly higher with the S&P 500 stocks trading at the 50 dma. Trading on the NYSE increased 2% and increased 10% on NASDAQ. The Volatility Index (VIX) dropped almost 3 points to close at 17%. In general, the VIX trades lower as the market trades higher and vice versa. So the fact that VIX has been trending downward as the market climbs isn't surprising. But as VIX gets lower, many analysts see the probability of a market pullback increasing. Jim Bittman gave an interesting talk at the Traders Expo in Las Vegas on the VIX; his message was to watch for divergence of the VIX trend with the market trend for signals of a significant market shift. But what we have here is standard VIX behavior: market trends higher and VIX trends lower.
My Jan condor on SPX sits at a P/L of -$1,139 with delta = -$87 and theta = +$81. The delta of my short call is 21 where I would normally be adjusting this position, but I am allowing this one to move a little further because of my expectation of a slow down in the markets as we enter the holidays. Absent a pullback or several days of sideways action, I will be rolling those call spreads higher soon.
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The markets traded largely sideways today but managed some small gains at the end of it all. The SPX closed up $5 at $1228 while RUT closed essentially unchanged at $764. Trading volume was down across the board with 3.8 billion shares of the S&P 500 stocks trading, down nearly to the 50 dma. Trading was down 29% on the NYSE and down 7% on NASDAQ. SPX appears unable to break through $1230 to new highs, but, just as importantly, the bears have been unable to pull the S&P 500 down either. RUT has outperformed the blue chips all year, reaching new 2010 highs over the past several trading days. But even RUT is showing signs of slowing down the past two days, trading essentially flat yesterday and today. Most economic data has been consistently showing a slow but steady recovery, but global economic woes appear to still have the street worried. Even a compromise on taxes did little to move this market.
I closed the 790/800 call spreads of my Dec iron condor on RUT today; I will allow the 660/670 put spreads to expire worthless; as they are almost four standard deviations OTM, that appears to be a safe bet. Assuming those spreads expire worthless, this position gained $1,660 on 20 contracts or 10% on capital at risk. The Jan condor on RUT continues to run right along the edge of adjustment with a P/L of -$1539, delta = -$90 and theta = +$92. The delta of the 1280 calls is 20. The theta/delta ratio of about 1:1 tells the story.
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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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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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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.
