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The markets traded down this morning after reading Bernanke's prepared remarks for Congress, but then rebounded and held some of the gains into the close. SPX closed up over $10 at $1105 while the RUT closed at $630, up about $5. Both indexes are still trading within the narrow ranges of support and resistance we have discussed earlier, especially the well defined range for the S&P 500 from $1100 to $1116.
I decided to establish my April iron condor on RUT today. I sold twenty contracts of the 680/690 calls for $1.10 and twenty contracts of the 550/560 puts for $0.85. At the close, this position stands at a P/L of -$80, delta = -$43 and theta = +$78. Both short options are at a delta of 13. Our Mar RUT condor now stands at -$1,720, delta = -$68, and theta = +$161. The 660/670 calls are about one standard deviation OTM and the 570/580 puts are about one and a half standard deviations OTM. The weather is perfect for condors, just muddling along.
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The February Consumer Confidence numbers came out this morning and were the lowest since April 2009. That, coupled with a strong dollar, sent the market down and it never recovered. The S&P 500 closed at $1095, down over $13. The SPX price chart shows a channel from $1085 to $1115 that SPX traded within over several weeks in November and December last year. So today's move down stayed well within that range. Coupled with lower trading volume, today's downward move wasn't significant. RUT also lost ground today, falling about $7 to close at $625, right at the support level formed by the double top last September and October.
Today's downward move was sufficient for me to remove the long call hedge on the March iron condor. I sold the two April $640 calls for $12.30, a $660 gain. That brought the position P/L to -$1,980 with a position delta of -$56 and a position theta of +$160. Our adjustments on both sides this month have removed much of our profit potential; the most we can hope for is about $1,800. Our Greeks are looking pretty good; if RUT trades within a relatively narrow sideways range, we may still squeak out a profit. The objective in this business is to minimize losses, not necessarily eliminate them.
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The Fed's move to increase the discount rate appeared to have the market headed lower as the market opened today, but the market recovered quickly, erased the early losses and closed with modest gains. A surprise decline in the consumer price index this morning probably helped the market's mood. RUT closed up over $2 at $632 while the SPX traded up to $1109. In my opinion, we have not definitively broken through resistance as yet. But, on the other hand, today marked the eighth successive up day for RUT - rather remarkable.
My Mar condor is in pretty good shape after yesterday's restructuring. The P/L stands at -$1,800 with a position delta of +$1 and theta = +$103 - now that's a theta/delta ratio for you! We still have our two April $640 calls in place; they now stand at a gain of $1400. Those calls are responsible for this trade being so perfectly delta neutral.
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After a day of choppy back and forth trading, the markets closed essentially unchanged on lower trading volume. The SPX closed at $1108 with a decline of less than a dollar, while the RUT closed at $632, up less than a dollar. The SPX appears to be caught in the same consolidation range of $1100 to $1116 as it was from mid-November to mid-December last year. Bernanke's testimony later this week could jolt the market out of this trading range, but I would be surprised if he says anything new.
My March iron condor on RUT stands at a P/L of -$1,540 with a position delta of -$10, and theta = +$115. We will initiate our April positions later this week. I considered selling the April hedges today, but decided we need that protection until we get a least some minimal pullback in RUT. So far, it seems to be stubbornly moving higher, just very slowly.
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News of increased unemployment claims this morning (up 31k) plus the largest gain in the PPI since October 2008 (1.4%) had the market concerned about inflation and a possible raise in rates by the Fed in response. But positive news came with the Philadelphia Federal Reserve manufacturing index up in February by 15%. The market traded pretty much sideways through most of the day with the SPX and RUT both right at strong resistance levels. But the afternoon trading inched up and resulted in both the SPX and RUT closing above resistance, but not strongly and on reduced trading volume - so is it really a break out or will it pull back in the next few days? RUT closed at $629, up over $4, and somewhat above its resistance level at $625. SPX closed above the $1100 resistance level at $1107, a gain of a little over $7.
Even though a case could be made for the markets stalling here in this area of strong resistance, I decided my March iron condor was too close to the edge. I closed the 20 contracts of the $640/650 calls for $3.40 and rolled up to 660/670 for a credit of $1.23. I also closed the 20 contracts of 520/530 puts for $0.22 and rolled up to 570/580 for $0.80. I left the April $640 calls on (now up by $1200) until I am sure this upward move has ended or at least slowed. This brings my Mar condor to a P/L of - $2,050, delta = +$16 and theta = +104. The profit potential for this trade is now reduced to about $2300 - not great, but still in the game. This has been a crazy month! RUT was trading at $636 when we opened this trade, dropped 9% to $580 and then rose 8% to today's close at 629. These are the unusual months that your trading strategies must be able to survive for trading the condor long term to be feasible.
On a more positive note, today's close for RUT at $629 makes it reasonably certain that our Feb 540/550 put spreads will expire worthless (RUT settles in the morning); you may recall we closed the calls last Friday, so our Feb iron condor gained $2,794 or 17% on capital at risk. Next week, we will start to look at entering our April condor.
