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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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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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The markets opened weakly this morning but then gathered strength and never looked back. There wasn't any economic data or other news to point to as the reason for the moves; some analysts saw the strong moves in Europe's markets as starting the trend. In any case, the move was typical of the market for the past several sessions: positive movement but on weak volume. The SPX closed at $1143, well above above its resistance level at $1131 and up $17 on the day. RUT closed at $670, up $19. Both indexes closed near their highs for the day. But trading volume fell across the board. The S&P 500 stocks traded 3.1 billion shares, well below the 50 dma. Trading on the NYSE dropped 37% and trading dropped 18% on NASDAQ. The FOMC will make its interest rate announcement tomorrow and we will receive some housing start data as well. We'll see if this bullish trend can continue. The light trading volume makes it hard to take this bull market very seriously.
My Oct iron condor position was stretched very thin by this move today. Even with help from the Nov $690 call hedges, the position is underwater by $2,500 with position delta = -$90 and position theta = +$97. The theta/delta ratio is adequate, but the delta of my short Oct $690 calls is up to 32 - time to get out of Dodge! Unless we get a pull back tomorrow, I will be closing and rolling call spreads.
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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.
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The markets opened with some enthusiasm this morning and SPX broke through its strong resistance at $1131, but it was short lived. The S&P 500 index pulled back and traded near unchanged for most of the day, closing at $1126, up less than a dollar. RUT traded up, pulled back and then traded mostly sideways, but managed to close up $4 at $651. Trading volume on this expiration Friday was expected to be high and it didn't disappoint; trading in the S&P 500 stocks jumped to 4.2 billion shares, well above the 50 dma at 3.5 billion shares. Trading on the NYSE was up 72% and volume was up 36% on NASDAQ. The University of Michigan consumer sentiment survey was down a bit from last month at 66.6 and the Consumer Price Index was up 0.3%, as predicted by most analysts. So the economic data didn't really surprise anyone, but it didn't give anyone the incentive for a buying spree either.
My Oct RUT iron condor spreads now stand at a P/L of -$125, position delta = -$104 and position theta = +$115. The delta of the short Oct $690 calls closed at 18, so we remain right at the edge of requiring an adjustment. So now we condor traders sit back and enjoy the weekend of time decay...
