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The S&P 500 set a record high for 2010 this morning and then promptly gave it all back and chopped back and forth all day. However, it surged near the end of the day to close at $1226 with a modest $5 gain. RUT gained $3 to close at $737. The nonfarm payrolls report was very positive with a gain of 151k jobs and a gain of 159k in private payroll jobs, but unemployment remains at 9.6%. The dollar strengthened today, which provided some of the head winds for the market's attempt to rise farther. Trading volume was flat to down today with a slight rise in the number of S&P 500 stocks traded: 4.7 billion shares. But trading dropped 5% on the NYSE and dropped 17% on NASDAQ.
When the markets pulled back this morning, I took that opportunity to close the rest of my Nov 740/750 call spreads and roll them up to 770/780. That brought the Greeks of the Nov position back in line with delta = -$42 and theta = +$102. The Greeks of the Dec condor stand at delta = -$75 and theta = +$78. The Greeks show the pressure being brought to bear on the 790/800 call spreads. The delta of the 790 calls = 16 so we may be adjusting this position soon if this bullish run continues.
It has been an interesting week in the markets. It seems like everyone, including me, had built up anticipation for the election results and the FOMC announcement, and then largely nothing happened... until the next day! So much for predicting the market's moves - have a great weekend.
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Yesterday it appeared the markets had priced in much of the Fed's announcement of further quantitative easing, but traders must have reconsidered overnight because the bulls were out in force this morning. SPX jumped up to about $1212 within a few minutes of the open and then just slowly gained all day to close at $1221, up $23. This matched the previous high set in April this year for the S&P 500. Can it break through that high? RUT ran up $18 to close at $733, below its high this year at about $745. Trading volume increased across the board. Over 4.5 billion shares of the S&P 500 stocks traded today, well above the 50 dma at 3.5 billion shares. Volume was up 18% on the NYSE and up 26% on NASDAQ. Today's strong run came in the face of an increase of 20k in initial unemployment claims, but continuing unemployment claims dropped 42k to 4.3 million.
My Nov condor is hurting in the face of this bullish onslaught. I closed half of my 740/750 calls and rolled them up to 770/780 and hedged the position with some Nov $720 calls. The position Greeks are still weak with delta = -$99 and theta = +$113. My Dec condor is faring much better, standing at a P/L of +$460, delta = -$59 and theta = +$83. But my call spreads on AAPL and GOOG are doing very well - testimony to diversification.
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The markets appeared to be anticipating good news from the election results and traded up somewhat today. But tomorrow may be a very different day. We will start with the ADP employment report before the open coupled with the election results, and then the FOMC announcement in the afternoon. It could be a very volatile day. SPX closed today at $1194, up $9 and RUT gained $14 to close at $713. Trading volume was basically flat with three billion shares of the S&P 500 stocks trading; trading was down 6% on the NYSE and up 1% on NASDAQ.
My Nov condor has a delta of -$142 and theta = +$234. The theta/delta ratio is good, but our price risk, as represented by delta, is too large. The Dec condor has a delta of -$31 and theta of +$92. So its theta/delta ratio is even better but the price risk is much more manageable.
Tomorrow should be interesting.
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Traders were generally on the sidelines this morning as they waited for the FOMC announcement this afternoon. Stocks mostly traded sideways and down before the announcement in the afternoon. SPX closed up $4 at $1198 after briefly trading down to its recent favorite number, $1185. RUT closed at $715, up $2 on the day. In general, the day's trading was uneventful; apparently, the election results and the FOMC announcement were "as expected". Trading volume was up across the board; the S&P 500 stocks traded 3.5 billion shares, equal to the 50 dma. Trading on the NYSE was up 23% but only up 3% on NASDAQ. The economic data announced today was generally positive but was ignored as traders waited on the Fed announcement. ADP reported a gain of 43k jobs in October, a big improvement from the loss of 2k reported for September. The ISM Services Index reported out at 54.3, a small improvement over September's 53.2, and factory orders for September rose 2.1%. The Fed will be buying as much as 600 billion dollars worth of treasury bonds through the second quarter of 2011. However, the announcement also included the usual cautionary language that the pace of purchase will depend on the committee's judgment of the economy.
My Nov condor remains at the high end of its range with delta = -$158 and theta = +$221. December's position is up about $1,100 and has a delta of -$29 and a theta of +$75 so it is well positioned. The much anticipated day in the markets is over without much happening - but that's good news.
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The markets were initially encouraged by some positive economic data, but the bears pulled the market back to end the day essentially unchanged. SPX closed up less than a dollar at $1184 while RUT dropped $5 to close at $699. Trading volume was flat to down with 2.9 billion shares of the S&P 500 stocks trading and a decline of 1% on the NYSE; trading volume on NASDAQ dropped 8%. The Oct ISM Manufacturing Index reported out at 56.9, a big jump from last month's 54.4. Construction spending is up 0.5% for September, but personal income dropped 0.1% and personal spending rose 0.2%. So the economic data continues along a flat to slightly improving line, but the markets are stalled until after the election results and the FOMC report Wednesday. If you have a prediction for either of those events, it isn't much help in predicting the market's response. The market may sell the news in either case. If the Fed waffles on QE II, the markets may sell off strongly since much of the recent gains have presumed additional quantitative easing. It is an excellent time to be delta neutral. I looked at the possibility of a straddle on the indexes today, but found that the markets have priced in large moves. The RUT straddle requires a move above $736 or below $664 to be profitable; similarly the SPX straddle requires a move of over $41 up or down. If I were a speculator, I might sell the straddle...
My Nov iron condor on RUT at 600/610 and 740/750 stands at a P/L of -$1,286, delta = -$94 and theta = +$217. The call spreads are one standard deviation OTM while the put spreads are over two standard deviations OTM. The Dec iron condor on RUT at 590/600 and 790/800 stands at +$440, delta = -$2 and theta = +$81. Both condors are in pretty good shape although the Nov condor is exposed if the events this week precipitate a strong bull run. The wait continues.
