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The EU and the IMF came to an agreement to rescue Greece over the weekend and the European Central Bank and the U.S. Federal Reserve also agreed to play support roles in the bail-out. This news led to a binge of short covering that drove the market up strongly at the open. RUT gapped up at the open and hit $688 within the first half hour of trading, then RUT settled down and traded sideways until the last 30 minutes of trading, when it traded up to close at $690, up $36 on the day. SPX traded similarly, closing up $49 at $1160. Trading volume was down across the board from last week, down 30% on the NYSE and down 35% on the NASDAQ. The S&P 500 stocks traded just under six billion shares, still above the 50 day moving average but down significantly from Friday's levels.
The big question now is whether the Greece bail-out deal is really solid. The EU member countries still have to vote on this package, so we could have some future bad news if one or more EU countries balk - how will the markets respond? Based on last week's trading, one has to be concerned about that possibility.
My May iron condor on RUT is skewed a bit too close to the upside after today's big move with position delta = -$146 and theta = +$428. The advantage we have at this point is the acceleration of time decay as we near expiration. The June iron condor on RUT has moved into the black with a P/L of +$580, delta = +$39 and theta = +$60. Both the 580/590 put spreads and the 790/800 call spreads are well outside of one standard deviation from the current RUT value of $690. The VIX dropped from 41% to 29% today; if volatility continues to come in, the profitability of the June position will increase. I am inclined to think the fundamental attitudes on the trading floors have been changed by last week's wild ride. We should not interpret today's short covering as an indicator of continued bullish trading to the upside.
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The markets opened this morning and actually traded upward for a few minutes before the dance to the downside began and lasted the rest of the day. The Nonfarm Payroll Report actually set a record with 290k jobs added in April, the highest since March of 2006. About 66k of those were temporary census workers. But the bad news was the unemployment rate as it ticked up to 9.9%. Apparently, a large number of people re-entered the market to search for jobs, pushing this number higher even as more jobs were being added to payrolls. Trading volumes remained at the record levels set yesterday; volume on the NYSE exceeded two billion shares both yesterday and today. Trading in the S&P 500 stocks exceed eight billion shares yesterday and was just under eight billion shares today (the 50 day moving average (dma) is about 4.5B). RUT closed at $653, a loss of $19 on the day while the SPX closed at $1111 for a loss of $17. RUT touched its January high of $650 during the day but rebounded a bit. SPX broke through its January high of $1150 yesterday and touched its 200 dma at $1096 before bouncing back upward. Gold set a new 2010 high at $1215.
As you might expect, my iron condors have been trampled in this stampede. The May put spreads were stopped out yesterday; today I opened new put spreads at 590/600 and rolled the calls down to 710/720. This positions both spreads outside of one standard deviation OTM and leaves us with a possibility of a gain of about $1000, based on the shaky assumption that the carnage is over. The greeks are excellent with delta = -$21 and theta = +$306. My June 640/650 put spreads were also stopped out yesterday. I closed the put hedges and established new put spreads at 580/590 today. This leaves my June RUT condor greeks at delta = +$30 and theta = +$67.
The question now is whether we have neared the bottom of this correction. The fact that the trading action both yesterday and today hit intraday lows and then bounced back upward is a positive sign, but we'll see.
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Global sovereign debt worries continued to drag the markets down today, but the trading was not nearly as one-sided as it was yesterday. Reports that Moody's is preparing to review Portugal's debt for a possible downgrade didn't help the mood on the street. The SPX broke through its 50 day moving average (dma) and traded as low as $1160 before recovering a bit to close at $1166, a loss of $8 on the day. RUT hit lows of $691 ($694 is its 50 dma) before closing at $699, for a loss of $8. Trading volume remained relatively high but didn't increase over yesterday's huge volume, with a 1% increase on the NYSE, flat on the NASDAQ, and flat on the S&P 500 stocks; however, the trading volume of the S&P 500 remained above 5.2 billion shares, well above its 50 dma.
The dollar opened the day very strong, up over 1%, primarily due to the weakened Euro; this placed additional pressure on the stock markets and easing of the dollar's strength late in the day probably accounted for the modest intraday recovery. The ISM Services Index reported out at 55.4 for April, unchanged from March. ADP reported 32k new private sector jobs were added to payrolls in April (19k were added in March). The unemployment numbers will be reported Friday, but most economists are predicting little or no improvement from the 9.7% level. Virtually all of the economic data is consistently pointing to a slow, modest recovery in progress.
My May RUT iron condor spread stands at a P/L of -$1,700 with a delta of +$56 and theta = +$150; so we still have a strong 3 to 1 theta/delta ratio and the short puts are right at one standard deviation OTM. The June iron condor stands at a P/L of -$860 with a delta of +$27 and theta = +$64. So the theta/delta ratio is still over 2 to 1 and the short puts are just inside one standard deviation OTM. So now we wait to see if the other shoe drops...
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Sorry I did not get to posting my blog yesterday. It was a crazy day and then I had my trading group webinar last evening. The economic news yesterday wasn't bad, although that wasn't obvious from the market's behavior. Initial unemployment claims declined to 444k from the previous 451k, and continuing unemployment claims dropped from 4.65M to 4.59M. But retail sales numbers came in weak. Concerns about Greece and the European Union were at the forefront of the traders' minds. It appeared this morning that the market might be stabilizing but now that isn't clear at all. If your stops closed out your put spread positions yesterday, be sure to keep your put hedges in place. That will minimize the losses. I will check back in after the market closes today.
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Global sovereign debt problems overwhelmed all other news today to drive the markets lower with greater volume. Factory orders for March increased by 1.3%, beating expectations. Pending home sales for March rose 5.3%, greater than the predicted 5%. But this positive news was completely eclipsed by concerns that Greece's fiscal problems will spread through Europe and perhaps the world. RUT plummeted $23 to $710 while the SPX closed at $174, a decline of $29. Both indexes managed rallies into the close that made up for some of the losses. The key question is whether we should interpret that late buying as the markets having reached a support level or whether more losses are ahead for tomorrow. Trading volume was increased significantly across the board with a 27% increase on the NYSE, and a 29% increase on NASDAQ; the S&P 500 stocks traded about 5.2 billion shares. Yesterday's trading volume on the S&P 500 was the only session out of the last 15 trading sessions to be below the 50 day moving average. Normally, we would interpret greater than average trading volume as conviction for the resulting trend - but, in the last few trading sessions, we have had large moves with increased volume both up and down. However, we are setting lower lows, so maybe the long awaited correction has begun.
My May iron condor on RUT is in pretty good shape with a net P/L of -$1400, delta = +$22 and theta = +$157. However, the June iron condor will need adjustment if this market continues down tomorrow. It stands at -$1,100, delta = +$7 and theta = +$75. The position greeks are excellent, which allowed me to be patient with this position today, but we will require some adjustments for any further moves downward. This market continues to set volatility records; now RUT has traded with swings of over $15 for four consecutive sessions - very unusual.
