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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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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.
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Markets opened upward and chopped largely sideways most of the day, but closed with modest increases. RUT closed at $634 for a $5 gain, while the SPX broke through the $1100 resistance level but could not hold it. SPX closed at $1099, up $7 on the day. Trading volume was mixed but positive. It increased 4% on the NYSE and 21% on NASDAQ. The S&P 500 stocks traded 2.9 billion shares, slightly higher than yesterday but well below the 50 dma. Volatility dropped 2% today with the VIX closing at 23%. Traders did not seem to have much of a reaction either way from the release of the FOMC's Beige Book this afternoon. The Beige Book did note improved consumer spending, a good sign for the recovery.
My Sept iron condor on RUT stands at a P/L of +$ 2,290 with a delta of +$4 and theta of +$115. Both spreads are well OTM and most likely will be allowed to expire worthless at expiration. I will make that call Friday. My Oct position stands at a P/L of -$160 with a delta of -$45 and theta = +$117. So theta/delta remains strong, although we are close to the adjustment point on the call side (the delta of the Oct $690 calls is 14). So we continue to simply play what the market gives us.
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The unemployment claims numbers boosted the markets this morning, but sellers came in in the afternoon and took back most of the gains. RUT ran as high as $642 but retreated to close unchanged at $635. SPX fared better, blowing through resistance at $1100 and closing at $1104, up $5 for the day. Initial unemployment claims came in at 451k, down from last week's 478k; this was a better improvement than expected by analysts. However, the continuing unemployment claims came in flat at 4.48 million and analysts expected a modest decrease. But today was another low volume trading day with a 2% decrease on the NYSE and a 16% decrease on NASDAQ. The S&P 500 traded flat at 3 billion shares, well below the 50 dma.
My Sept RUT iron condor at 530/540 and 740/750 stands at a P/L of +$2,450 with delta = +$8 and theta = +$54. Both spreads are greater than three standard deviations OTM with one week to go. The Oct RUT iron condor spread at 540/550 and 690/700 stands at a P/L of -$300 with delta = -$42 and theta = +$129. The delta of the 690 call is back to 13, so the sideways action of the past few days has been helpful. The Sept iron condor has been a relatively calm trade; only one hedge adjustment was made during its life and that was established one day and taken off the next. I looked back at my trading record for this blog this afternoon. Assuming the Sept trade expires worthless or I close it tomorrow, my total gain is now over 24%. But I have taken 4 losses out of 16 months of trading. So the win ratio is about 75%, close to what the probability calculations would have predicted. Most significantly, only two trades out of 16 had no adjustments. This record reinforces what I teach my students: you cannot trade the iron condor profitably without a robust system of risk management. The trader who sees the advertisement of the high probabilities associated with the iron condor will be eaten alive if he doesn't know how to adjust this trade.
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Traders returned from the Labor Day holiday amid concerns for the health of the European Banks. This weighed heavily on financial stocks in our markets, and those selling pressures led to some profit taking in other sectors as well. The European financial concerns drove the Euro down and led to increased strength in the U.S. dollar, further weakening U.S. equities. I expected increased trading volume coming off the holiday weekend, but trading volume was weak virtually across the board. Trading was down 13% on the NYSE, but up 2% on NASDAQ. The S&P 500 stocks traded down significantly from last week to 2.7 billion shares, well below the 50 dma at 3.6 billion shares. RUT lost $14 to close at $629 and the SPX closed at $1092, giving up $13. Both indexes broke down through new support levels, which are the old resistance levels broken on the way up last week. The SPX broke down through its $1100 resistance level but remained above the 50 dma at $1082; RUT stopped just above its 50 dma at $627. I didn't find today's weakness too alarming due to the low volume and the fact that it wasn't based on some fresh economic news that the markets found to support the double dip fears.
My Sept iron condor is in excellent position with its P/L of +$2,350, delta = $1 and theta = +$82. The call spreads are over four standard deviations OTM while the put spreads are 3.4 standard deviations OTM. I made some adjustments to the Oct condor today that improved its position to a P/L of -$340, delta = -$29 and theta = +$117. For the directional trader in you, I suggest AAPL. I was impressed with AAPL today as the market indexes all pulled back significantly while AAPL lost less than a dollar per share. I have had the Jan 2011 270/300/330 call butterfly on AAPL for a couple of months and I think this remains a strong year-end play.
