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The Challenger jobs report cited 42k jobs lost in February before the market opened this morning. This was viewed positively since it was the lowest monthly job loss number since 2006. As the market opened, the ADP payroll data report cited a loss of 20k jobs in February, the smallest decline reported by ADP in a year. The markets traded upward on the basis of this good (?) news until about 11:30 am ET. Then the markets slid the rest of the day to close essentially unchanged. RUT closed up about $1 at $649 while the SPX traded as high as $1125 before declining to close at $1119, a gain of less than a dollar. The FOMC Beige Book was released this afternoon and reported modest economic improvement across the country. Trading volume was up today on the NYSE and the NASDAQ but remains below average on the S&P 500. Notice how the SPX traded higher both yesterday and today but could not hold those intraday highs. That behavior was also true of the trading in RUT today. This makes me wonder if this bullish run that began in early February is running out of gas.
In the meantime, my wounded March condor limps along with a net loss of $3,460, delta = -$138 and theta = +$206. I have just about run out of options to salvage this trade any further, although we will achieve our goal of limiting any one month's loss to less than a month's potential gain. This position's loss will be steadily decreased as the time decay accelerates these last few days; but our best case scenario is for a small loss. The Apr condor is faring somewhat better but is in a weakened position after this recent run up in RUT. The P/L is -$955 with delta = -$138 and theta = +$206. The big difference with the Apr position is that we have a lot of time and possible adjustments remaining to salvage a gain from this trade.
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Investor's Business Daily changed its market reading to "market in confirmed uptrend" after yesterday's strong performance. Stocks traded up across the board today, although trading volume remains below average. Small cap stocks had led the recent gains, outpacing the large stocks typical of the S&P 500. RUT traded up almost $6 to close at $648 today, while the SPX rose a little less than $3 to close at $1118. The SPX appears to be struggling to break through $1120; it was above $1120 a couple of times today, but was pulled back. By contrast, the Russell 2000 index is only one dollar short of its 52 week high. The S&P 500 would have to rise over $30 to reach its 52 week high.
This March expiration month has been a very challenging month for delta neutral traders. This is one of those months when good traders are happy to break even or at least minimize their losses. I opened my Mar condor on January 21 with the RUT at $628; it proceeded to drop over $42 to $586 and has now roared back upward by $62 to its close today at $648. I rolled my Mar 660/670 calls up to 670/680. The trade now stands at a P/L of -$3,140, delta = -$28 and theta = +$153. This last adjustment moved our Greeks into a good position, but even if the market trades within the channel formed by this trade for the next couple of weeks, this trade will just barely break even.
The Apr condor stands at a P/L of -$805, delta = -$79 and theta = +$79 after adding a May call to adjust the position earlier today.
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The markets are shrugging off good news and are largely unaffected by bad news. GDP results for the fourth quarter were revised upward to an annual rate of 5.9%, but the markets apparently do not believe this is sustainable so that had little effect. Existing home sales were down 7% in January and the consumer sentiment survey from the University of Michigan was unchanged - so consumers are also trading sideways just like this market. Trading volume was down on all markets. The S&P 500 closed at $1104, a gain of less than $2 (still in its trading range) while the RUT was close to unchanged, closing at $629, down less than $2 (also still within its trading range).
The time decay on my March condors is building and slowly moving that position toward profitability. The P/L is up to -$840 (was at -$1540 yesterday) with delta = -$70 and theta = +$162. The newly coined April condor is already in the black with +$600, delta = -$37 and theta = +$75. Both positions have healthy theta/delta ratios. The market's indecision is good for delta neutral positions.
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The markets chopped about a bit this morning after disappointing news from the ISM manufacturing index; the index declined for Feb and was lower than expected. But it didn't take long for the market to get over that disappointment and then it traded pretty steadily upward the balance of the session. Trading volume was mixed but generally lower: down about 8% on NYSE, up about 11% on NASDAQ, but it remained below the 50 day moving average on the S&P 500. RUT traded up over $14 to close at $643. The SPX closed at $1116, up a little over $11. The SPX close is right at resistance, whereas RUT clearly broke through resistance and is closing on its 52 week high at $649. Another remarkable aspect of today's strong market - this all happened as the dollar was trading higher.
Today's strength necessitated some adjustments to my Mar iron condors. I bought two Apr $660 calls for $8.50 to protect my call spreads. I also closed my 570/580 put spreads for $0.35 (a gain of $900) and rolled up to 590/600 for $0.60. So the Mar position now stands at a net loss of $2,080 and position delta = -$71 and theta = +$178. This trade is struggling to break even at this point; absent a pull back, we may be simply holding our losses to a minimum.
The April iron condor stands at a P/L of -$60, delta = -$93 and theta = +$89. The delta of the short $680 calls is up to 17, nearing the area for adjustment.
Now the big question: is this market going to push to new highs as RUT appears to be doing or drop back within the trading range as it appears the S&P 500 is doing?
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The markets opened weak this morning on the back of a stronger dollar and some poor news on the unemployment front. New unemployment claims rose from 474k to 496k with the market expecting 460k. Ongoing unemployment claims rose to 4.62 million from 4.61 million with the market expecting a decline to 4.57 million. This sent all of the major indexes significantly lower. But the dollar weakened as the day wore on and the market recovered most of its losses. After plunging as low as $621, RUT closed unchanged at $630, right in the middle of its 625-635 trading range. Similarly, SPX traded down to $1086 before recovering to close at $1103, a loss of less than $2. SPX has strong support at $1100 and resistance at $1116. What strikes me about this market is its lack of direction; it seems trapped in this trading range without a strong bullish case, but also without a strong case for lower prices. The flurry of earnings reports during the past few weeks are similar when you think about it: companies generally have slashed costs to retain earnings but their revenues have actually decreased and their forecasts for growth have not been overly optimistic. Thus, one gets a picture that isn't very bullish when looking forward, but it isn't full of gloom and doom either. So a sideways market isn't too surprising.
My Mar condor stands at -$1,540 and delta = -$67 and theta = +$178 and the April condor stands near breakeven with delta = -$43 and theta = +$83.
