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The markets opened downward this morning and chopped sideways and down for most of the day. Much of the loss was recovered late in the day. SPX closed unchanged at $1125, near its high for the day. RUT dropped $5 to close at $648. Trading volume was flat to down with the S&P 500 stocks trading flat at 3 billion shares. Trading on the NYSE dropped 2% and it dropped 13% on the NASDAQ. Initial unemployment claims reported at 450k, down three thousand from last week. Continuing claims were down 84k to 4.485 million. The PPI (producer price index) rose 0.4% in August, surprising analysts who expected a smaller increase.
Gold hit record highs today at $1,277 per ounce. To my mind, that demonstrates the high levels of fear and uncertainty still present among investors. A contrarian might see this as evidence that the bearish mood has run its course. But I think the equity markets will struggle to gain higher ground until we see significant improvement on the unemployment front.
My Sept RUT iron condor positions will all expire worthless this weekend; that closes Sept for a 15% gain. My Oct iron condor continues to torment me; the market is hovering right around the levels where I need to hedge this position and then remove the hedge. Today I sold the long Nov calls I bought yesterday. This position now stands at a P/L of -$685, delta = -$93 and theta = +$142. Theta is still larger than delta, but not by as much as I would like. The delta of the short Oct calls stands at 18, right at the edge of triggering the adjustment. So we continue to watch and see if the markets can break through resistance at this level or turn back downward. The way the bulls keep pushing the indexes back up each day is impressive. But if resistance continues to hold, sooner or later we will get some bad news that will push us back down to support levels.
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The area of $1125 to $1130 is a key resistance level for the S&P 500 and the SPX traded as high as $1126 today but then closed at $1125, up $4 on the day. RUT has similar resistance levels, one broad one set in early August, at $655 to $665, and another resistance level at $670, set in late July. RUT traded down to $643 before running up to $654 and closing at $653, up $3 for the day. The early weakness in the markets was driven by several weak economic data reports. The Empire Manufacturing Survey reported out at 4.1, down from 7.1 last month. Industrial production gained 0.2% in August, down from the previous month's gain of 0.6%.Capacity Utilitization was flat at 74.7%. Trading volume was down with the S&P 500 stocks trading 3 billion shares. Trading on the NYSE was down 4% and volume was flat on NASDAQ.
The market jerked me around today. This morning the delta of my $690 calls in my Oct iron condor dropped to 16, so I sold my hedge options. Then a couple of hours later, I am back in the market buying more protection. The delta of the Oct $690 calls closed at 21. My position's P/L stands at -$615 with position delta = -$40 and theta = +$97. The theta/delta ratio is still strong, but RUT has been trading right around my adjustment trigger. But all you can do is follow your rules and trade what the market gives you.
By the way, I will be speaking at the Trader's Expo in Las Vegas on November 19. Consider coming out to this meeting; if you are there for my talk, catch me afterwards and I will buy you a drink.
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The markets were buoyed today by the lack of surprises from the banking regulations revealed in Basel III; this boosted European banking stocks and also spread to our markets. Some positive economic data from China helped the markets as well. SPX closed at $1122 for a gain of $12 while RUT ran even harder to close up $16 at $652. An even more bullish sign was the increased trading volume across the board with the S&P 500 stocks trading up to 3.3 billion shares, just below the 50 dma at 3.5 billion shares. Trading on the NYSE increased 21% and increased 15% on NASDAQ. It is also noteworthy that both SPX and RUT blew through their 200 dma today - another bullish sign.
My Sept RUT iron condor is sitting at essentially full profit with both spreads far OTM; the deltas of the short options are less than one. I began to adjust my Oct RUT iron condor today and it now stands at a P/L of -$785 with position delta = -$74 and theta = +$121. If this bullish trend continues tomorrow, more adjustments will be required to keep this position out of trouble.
The analysts at iVolatility.com have identified a head and shoulders pattern on the SPX chart (left shoulder at $1150 back in January, the head at $1220 in late April, and the right shoulder at $1131 in late June). Since the neckline is at $1042 and the SPX failed to break through the right shoulder in July and only made it to $1125, they see SPX trading in the range of $1042 to $1125. By this analysis, if we see SPX break through $1125 (came close today), we may be headed higher; on the other hand, a break down through $1042 would signal a bearish trend - food for thought.
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As mentioned in my blog yesterday, some analysts see $1125 as the top of the trading range for SPX. It certainly behaved that way today; SPX ran as high as $1127 before being pulled back by the bears to close essentially unchanged at $1121. RUT also pulled back a bit after running higher during the day. RUT closed at $649, down $3. Trading volume was essentially flat with 3.3 billion shares of the S&P 500 stocks traded; trading volume on the NYSE was flat and was up 6% on NASDAQ. A better than expected retail sales report encouraged traders before the open this morning. But profit taking started as soon as the market opened - too many up days recently and a lot of nervous traders remain concerned about the anemic economic recovery.
I am allowing my Sept RUT 530/540 put and 740/750 call iron condor to expire worthless and I think it is safe to log this one in as a $2,590 gain or a 15% gain on the capital at risk (20 contracts). The Oct RUT 540/550 put and 690/700 call iron condor stands at a P/L of -$40 with position delta = -$65 and theta = +$109. I have one Nov $690 call on as a hedge (my Oct $690 calls are at a delta of 18). For now, the Oct position is in good shape.
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The markets continued to inch higher today, but on lower volume. SPX closed above its $1100 resistance level at $1110, up $5 for the day. RUT traded up $2 to close at $636. Trading volume for the S&P 500 dropped to 2.6 billion shares. Trading on the NYSE declined 9% and declined 1% on NASDAQ. Trading volume in the S&P 500 stocks has steadily declined since the big up day last Wednesday. The only economic data released today was the wholesale inventories report for July, up 1.3%; economists had expected a more modest 0.4% increase.
My Sept iron condor has pretty well exhausted its time decay; both spreads are over four standard deviations OTM, so I have left the position open and plan to allow the spreads to expire worthless, barring a move on RUT that brings either spread to less than two standard deviations OTM. It should close for its maximum gain of $2,590 or 15% on 20 contracts.The Oct iron condor stands just above break-even at a P/L of +$120, delta = -$57 and theta = +$123.
Have a nice weekend.
