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Today was a slow news day and the markets just traded sideways most of the day with low volume. The major indexes might have closed unchanged if not for a sell-off in the last hour, resulting in all major indexes closing for modest losses. SPX closed down $7 at $ 1142 while the RUT lost $3 to close at $668. SPX appears to have established $1150 as its new resistance, so a breakout above $1150 and a breakdown below $1131 would be signs to watch for. All of this choppy trading occurred with low volume. Trading was down 17% on the NYSE and down 5% on NASDAQ. Trading in the S&P 500 stocks dropped to 2.8 billion shares, down from Friday's trading right at the 50 dma of 3.4 billion shares. A few individual stocks are moving upward, like GOOG and AAPL, but generally the markets appear stalled here with most traders on the sidelines.
My Oct iron condor is hedged with Nov calls and sitting in fair condition with a P/L of -$2,093 with position delta = -$92, and theta = +$141 on 20 contracts. The 690/700 call spreads are sitting at 0.6 standard deviations OTM while the 540/550 put spreads are over 3 standard deviations OTM with 17 days to expiration. I established the Nov RUT 520/530 and 740/750 iron condor last week for a credit of $2,740 on 20 contracts. It now stands at a P/L of -$800 with a position delta of -$48 and a position theta of +$78. The Jan 2011 270/300/330 call butterfly I recommended to my trading group in July is now up 62% - the market may be stalled, but AAPL is moving!
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The markets jumped up at the open and never looked back. The major indexes just steadily climbed upward all day. The SPX closed at $1149, up $24 on the day. RUT gained $22 to close at $671. Before the market opened, durable good orders were reported for August as down 1.3% but analysts were expecting a decline of 1.4% - does that make for buying euphoria to you? Later in the morning, new home sales were reported as flat month on month - again, not terrible, but hardly optimistic. But the run upward continues to occur on modest volume; trading in the S&P stocks increased slightly to 3.5 billion shares, right at the 50 dma. It just goes to show that the herd can just begin to move in one direction for no obvious reason, and you had best not try to stand in the way; all of your excellent analysis will just be trampled.
Of course, this run upward hurt my Oct iron condor, that now stands at a P/L of -$2,163 with delta = -$105 and theta = +$87. If this run continues next week, we may have to do some surgery on this position.
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After the build-up to the Fed announcement yesterday, the markets just wandered sideways and downward today with little economic data to propel them one way or the other. Buying late in the day took the markets off of their lows. SPX closed at $1134, down $6. SPX traded down to its support level at $1131, but bounced up a bit for the close. RUT also traded down $8 at $657; in a similar pattern to SPX, RUT traded down to $653, the support level formed by the consolidation pattern last week, but rebounded slightly. Trading volume was flat to declining from yesterday; Trading in the S&P 500 stocks held at the 50 dma of 3.5 billion shares. Trading volume was down 10% on the NYSE but up 4% on NASDAQ.
My October RUT iron condor is still sitting basically where it was, right at the edge of adjustment; the Nov $690 call hedges are still in place. The P/L now stands at -$1,385 with delta = -$51 and theta = +$148. Today's pullback of RUT lessened the pressure, but this position isn't out of the woods yet. This market appears to need some significant news or data to push it one way or the other. Absent that, it may just chop sideways for a while. Yesterday's reaction to the FOMC report is a good example. Early reactions went in both directions, but eventually settled largely unchanged. Today's action was downward, but held support. Of course, the beauty of delta neutral trading is not being required to predict the market's direction. I just need a well defined system of risk management to deal with what the market gives me.
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Disappointing news from Europe sent the futures into negative territory this morning. Then the initial unemployment claims data came in with a decline of twelve thousand but the market was expecting a larger decline. Continuing unemployment claims declined 48k to 4.489 million. On the positive side of the news, existing home sales for August increased 7.6%. The net result was a weak start to the markets today with choppy trading around the unchanged line through most of the day, but the sellers started taking profits this afternoon and drove the markets to losses across the board. SPX broke through support at $1131 to close down $9 at $1125. The next well defined support level on the SPX is down at $1040, although it could find support at the 50 dma at $1098. RUT lost $8 to close at $649. All of this trading occurred with lower volume with the NYSE flat and the NASDAQ down 12%. Trading in the S&P 500 stocks declined a bit to 3.3 billion shares.
Today's market retreat allowed me to close the hedges on my Oct RUT 540/550 690/700 iron condor. The delta of the $690 calls is now back to 16. This position now stands at a P/L of -$585 with delta = -$95 and theta = +$188. The theta/delta ratio is pretty good at roughly 2 to 1, but the relatively large delta tells us we are still in some danger from a run upward in RUT. This position still retains the potential to make nearly $2,955 or 17% (on 20 contracts). That is somewhat surprising since the RUT has tormented us by its volatility right at the edge of my adjustment trigger; I have bought and sold Nov hedge options four times in the past four weeks. The rolling up of our put spreads helped cover the cost of those adjustments. So now we return to trying to find some rational cause and effect in this market - good luck! That's the advantage of the delta neutral trader - he has thrown away his crystal ball!
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The collective market appeared to hold its breath this morning waiting on some significant news embedded in the FOMC announcement. Immediately after the announcement, the talking heads started reading the tea leaves and the markets gyrated back and forth, but all of the major indexes closed down a bit on the day (except the Dow which is essentially unchanged, up $7). SPX closed at $1140, down $3 while RUT lost $5 to close at $665. SPX is holding above the significant resistance at $1131 it broke yesterday and RUT is holding just below the highs it set in mid-June and late July. So, it appears the market has stalled here. The Fed announcement didn't appear to say anything new. Bernanke and company have been talking about additional "quantitative easing" for some time now, but it all appears to be talk so far. Plus, I read considerable debate questioning the Fed's ability to actually prop up the markets. Many believe the FOMC language is designed to instill confidence and nothing more. So we sit and wait for some news event to push the market one way or the other. But don't be deceived by this market recent run upward; 27 states reported higher rates of unemployment in August. We are not out of the woods yet.
Our Oct position remains in jeopardy, but the delta of our Oct $690 calls has pulled back to 29, so I have decided to hold the call spreads open for now. The Oct iron condor stands at a P/L of -$2055 with position delta = -$69 and theta = +$113. A stalled market such as this is perfect for condor traders; it is just unfortunate it chose to stall so close to my call spreads.
