Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

Wow! I just cannot believe the markets are this strong. Initial jobless claims reported a higher number than expected this morning, but the market still rallied. All of the major indexes were up about 1% or more. RUT closed at $557.80. Looking at the RUT price chart, you will note that the previous three sessions were stalled right at the high price set back in early November, but today's action broke through that resistance level. If you follow candlestick charts, you will recognize today's "shooting star", often a sign of a reversal of a bullish trend. On the other side of the coin, today's highs were set with higher trading volume - a bullish sign. The bottom line for me is that I don't see the economic basis for this rally, but we have to trade based on what the market gives us, not what we think it should be doing.

My Aug iron butterfly is nearly exhausted; the P/L is now -$2,812, delta = -$126 and theta = +$132. A one to one ratio of theta/delta is weak. I nearly closed this trade today, but the pullback in the last hour or two of trading persuaded me to give it another day. You might disagree with that decision and I admit it is borderline; I may be allowing my prejudice about this rally to influence me.

My Aug iron condor is in better shape with a P/L of -$655, delta = -$53 and theta = +$107. A two to one ratio of theta/delta is good, albeit minimally good. Our Sept $530 call is up by more than three thousand dollars at this point - that call is keeping this trade alive.

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

All of the major indexes traded down today, but last hour buying, similar to yesterday, pared the losses back to around 1%. RUT closed at $548.38. The CBOE Volatility Index (VIX) has risen the past three sessions; a rising VIX suggests rising fear in the market. So we remain in this tenuous trading range, unsure whether it will basically trade sideways or if it is about to fall off the cliff. The rising VIX is measuring that fear.

My Aug iron butterfly sits at P/L = -$2,066, delta = -$86, and theta = +$156. Notice how our theta is slowly building as RUT essentially trades sideways; this is the advantage given the income options trader.

My Aug iron condor has a P/L = -$920, delta = -$21, and theta = +$148. The Sept $530 call we are holding to hedge our 570/580 call spreads is trading at $35 and about half of that is time value. While that is costing us some theta, we can't afford to sell it until the RUT makes a definite downward move. And $148 in theta is nothing to sniff at. So we continue to wait...

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

Today's trading in the markets was choppy and went back and forth all day. However, the bulls were able to finish the day with small increases in all of the major indexes. This market has surprising strength. I am expecting it to trade sideways if not slightly downward for a while here, but who knows? That is why it is crucial that you keep your positions properly hedged so that any one day's big move doesn't kill you.

RUT closed at $550.88. I took the opportunity this morning while the market was down a bit to adjust my iron butterfly by closing two 530/600 call spreads and rolling them up to 560/610 and closing two 450/500 put spreads and rolling them up to 470/520. This position now consists of two 470/520 put spreads, two 460/510 put spreads, two 550/600 call spreads and two 560/610 call spreads. It now stands at a P/L of -$2,498, delta = -$92 and theta = +$141. So we still have moderate risk to the upside if this rally continues, but our theta is at a healthy positive level.

My August iron condor position is unchanged with a P/L of -$1,155, delta = -$30 and theta = +$130. We still have one Sept $530 call hedging the upside, but our short $570 calls stand at a delta of 32, so we need this hedge. At this point, this position has a healthy positive theta and I can afford to be patient.

By the way, do you know any other options trading coaches/instructors who post their trades publicly every day so you can see if they practice what they preach?

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

The Conference Board's consumer confidence report weighed heavily on the market most of the day, but buyers appeared during the last hour of the market to restore most of the markets' earlier losses. The SPX closed at $979.62, down 0.3%. The RUT was down as far as $544 during the day, but rebounded to close at $551.95, a modest 0.2% gain. This rally seems to contradict the generally dismal economic news and appears to have staying power, but who really knows? The fact of the matter is that most of the people participating in the markets today are nervous, having lost their comfortable rules of thumb over the past few months. So the next economic report or earnings announcement could trigger a rally or a sell-off. Remain cautious.

My Aug iron butterfly position is largely unchanged from yesterday with a P/L = -$2,270, delta = -$99, and theta = +$140. The $140 per day of time decay is comforting, but this position is right on the edge of requiring additional adjustment.

My Aug iron condor is slightly improved at a P/L of -$825, delta = -$35 and theta = +$123.

So we wait and see what the market gives us tomorrow: a strong move upward and more adjustments, or a downward move with a sigh of relief.

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

During a discussion with a fellow trader today, I said I often feel like a two headed monster: one head is trying to rationalize today's price moves and predict tomorrow's moves; the other head is ignoring all of the talking heads and simply responding to the market's moves according to predefined trading rules. I like to trade options with non-directional income generation strategies. To be successful with these strategies, it is essential that you quiet the part of your mind that is tempted to predict the market's next move. I think my ego is strongly tied to these predictive analyses because it is so attractive to think I outsmarted everyone else. As a result, I have found it very important to always doublecheck my rationale before making a trade. Am I listening to the right head?

Today, the markets traded basically sideways in a low volume, choppy market. This has been a remarkable run for the Russell 2000 Index: since July 10, we have had eleven trading sessions; nine have been up days with only two sideways to slightly down days. So a bit of a slow down isn't too surprising. The RUT closed at $548.46 and the SPX closed at $979.26, both up less than 0.5% for the day.

My iron butterfly position is essentially unchanged at a P/L = -$2,424, delta = -$83, and theta = +$89. My summary comments from yesterday are still applicable.

My Aug iron condor stands at a P/L = -$1,425, delta = -$8, and theta = +$122. I still have one of my Sept $530 calls protecting my $570/$580 call spreads. That protection plus a strong positive theta has me feeling pretty good about this condor position in spite of adjusting for both downside and upside moves this month.