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Traders largely sat out today's trading session; volume was lower across the board. RUT and SPX both traded within a narrow range, $2 and $4, respectively. SPX closed at $1139, down twenty cents and RUT gained $0.05 to close at $667. The strong run of the markets over the past six sessions makes the market even more susceptible to any bad news. Even a minor pull back may spark a round of protective profit taking. However, there isn't much in the way of scheduled economic reports until Thursday's unemployment numbers, and then on Friday we have retail sales and the Michigan consumer sentiment report. So we may drift sideways for a couple of days.
I have rolled all of my call spreads up in both the March and April positions. I have also rolled the put spreads up from below to compensate for some of the losses rolling the call spreads upward. There is a trade-off in this maneuver: taking the profits on the put spreads helps offset some of the losses on the call spread side of the trade, but it also opens us up to a whipsaw if the market suddenly turns back. This is yet another example of the "no free lunch" principle.
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Wow! The market took off to the races after hearing that the unemployment level was unchanged at 9.7% and 36k jobs were lost in February. I guess the market was expecting really bad news. When one looks at the intraday charts you have to be impressed with the steady rise throughout the day - a very strong showing. I expected to see some profit taking, but it never happened. Trading volume on the NYSE and NASDAQ were both up today, but the S&P 500 continues to trade below its 50 day moving average. The SPX ran up $16 to close at $1139, close to its 52 week high at $1150. But small caps have been even stronger than the blue chips during this bullish surge; RUT convincingly broke through resistance to close at a new 52 week high at $666, a run of nearly $14.
The market bulldozed right through my March and April iron condors. March is shaping up to be my first loss since August. My adjustments on April are holding it in check so far, but I may have to roll some of those call spreads up next week. In fact, this market swing has been even more severe than the one in late July that set up that earlier loss. However, it is naive to think trading doesn't involve losses. Many people are always searching for the guru who never loses. The reality is that many of those gurus don't even trade. Successful traders limit their losses in months like this one to manageable amounts. As long as you don't lose more than you gained last month, you can keep the doors of your business open. Risk management is the name of the game!
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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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The markets traded in a narrow range today, held down by a stronger dollar and anticipation of tomorrow's unemployment numbers. Pending home sales dropped 7.6% in January, which surprised analysts who expected a 1% increase. Initial jobless claims dropped 29k from last week and continuing jobless claims also dropped 134k. This news appeared to push the market lower in the first hour of trading, but then it traded largely sideways until the final half hour. Then the markets moved up significantly to close with modest gains for the day; did someone leak the unemployment numbers? RUT closed at $652, up a little over $3 and the SPX closed above the significant $1120 level at $1123. Tomorrow will tell us whether these indexes have truly broken out from resistance. Trading volume was weak; it was flat on the NYSE, lower on NASDAQ and below average for the S&P 500. It appears the large players are still waiting for a signal to move.
Since my trading advisory service, Flying With The Condor™, began a few weeks ago, I will not be reporting daily on my condor trading. I will periodically update you on my positions and my track record. In the meantime, check out the Flying With The Condor™ service. It comes with a money back guarantee.
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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.
