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I enjoy roller coasters, but not in my trading. The unemployment rate was reported lower by 0.3% just as the market opened, but another 200k jobs were lost in January. That report just piled onto the concerns raised yesterday about the financial instability of several European countries and the markets traded lower all day. However, about an hour before the close of trading the dollar started weakening and the markets bounced back strongly and actually ended in gains for the major indexes. RUT closed up $3 at $593 after trading as low as $580 and the SPX dipped to $1044 before closing at $1066, up $3. What a swing!
The weakness in the markets this morning prompted me to do some major surgery on my positions (imagine my surprise toward the end of the market today). I closed the 560/570 put spreads in my Feb iron condor for $2.52 and opened 20 contracts of the Feb 530/540 put spreads for $1.03. As the market reversed itself toward the end of the day, I sold the Mar $580 put for $16.40. The end result of all of this was a Feb iron condor at 540/550 and 640/650 with a P/L of +$1,194, delta = +$25 and theta = +$184. This condor now stands almost perfectly at about one and a half standard deviations OTM in each direction.
My Mar iron condor was in even more fragile condition, so I completely restructured it as well (but no jobs were lost). I sold the Apr 570 puts for $21.80, closed the 560/570 puts for $3.10 and opened 520/530 puts for $1.15. I also closed the 670/680 calls for $0.30 and rolled down to 640/650 for $1.05. It is worth noting that a conservative trader could have simply thrown in the towel this morning and closed this Mar condor for a net loss of about $100. Thus, another reminder that trading the iron condor can be profitable without enduring large losses if you manage the risk properly. The new position at 520/530 and 640/650 now stands at a P/L of -$500, delta = -$38 and theta = +$100. The new call position is now right at one standard deviation OTM, much closer than I anticipated this morning when I rolled down. When this happens to you, repeat the mantra, "I played what the market gave me; I didn't try to predict what was coming". Don't second guess yourself.
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Asian and European markets led our markets downward over financial concerns for Greece, Portugal and Spain. The initial jobless claims for the week ending January 30 increased over the previous week; that didn't help the mood in the markets. Several retailers reported increased sales but that wasn't sufficient to change the mood. The only positive straw to cling to was that trading volume remained below its 50 day moving average, suggesting the institutions haven't begun panic selling (yet). But this was a huge down day, breaking several support levels. The SPX broke its long time support level at $1173 to close at $1063, down $34. RUT closed down about $21 to $590.
I adjusted both of my iron condors this morning, but those adjustments were nearly exhausted by the end of the day. I bought one Mar $580 put for $14.90 for the Feb condor and that position closed at a P/L of +$2,230, delta = +$64 and theta = +$147. Those Feb $570 puts now have a delta of 26. The fact that this position is down to about two weeks to expiration makes it a little less sensitive to this big down move - not so for my Mar condor. I bought two Apr $570 puts for $18.30 this morning, but by the end of the day, I had run out of room. My short Mar $570 puts now have a delta of 34. Unless the market rebounds first thing in the morning, I will be closing and rolling those put spreads. The Mar condor closed today with a P/L of +$610, delta = +14 and a pathetic tiny theta of +$1. What a day! But, all is not lost. Our positions are all still in the black and we have time for further adjustments to rebuild our gains.
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The markets opened weakly this morning and traded down and sideways for about an hour but then rose pretty steadily throughout the day. The S&P 500 broke its significant resistance level at $1100 around noon, and managed to stay above that level into the close at $1103. RUT gained almost $5 to close at $614. Volume was up 13% on the NYSE and the major indexes traded strongly into the close. All in all, it was a pretty strong day in the markets and probably encouraged traders that the correction was over. I will feel more confident about that conclusion after seeing how the market handles the ADP payroll data tomorrow and the unemployment report Friday.
Today's move up in RUT pushed my Mar iron condor to a nearly perfect delta neutral position with an overall P/L of +$1,400, delta = -$1, and theta = +$84. The Feb condor is starting to feel the pressure on its 640/650 call spreads (the 640 calls have a delta of 16). The P/L = +$2,380, delta = -$102, and theta = +$229. So we wait and see if we will need to adjust those call spreads.
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The markets traded down at the open and then just chopped back and forth in essentially sideways manner all day. The ADP payroll numbers beat expectations but that did not seem to be able to generate broad based buying. Cisco's earnings report after the close was upbeat, but it will be interesting to see how the market reacts tomorrow. Cisco is seen as a broad tech health indicator; Cisco is up in after hours trading but the market hasn't had time to digest management's outlook. The S&P 500 is hanging in there at the $1100 resistance level; SPX closed down $6 at $1097. Rut also lost $3 to close at $611. The fact that SPX is holding at resistance supports the idea that the correction may be over, but we will need some strong upward follow through to confirm that conclusion.
This sideways action is good news for my iron condors; the Feb RUT condor stands at a P/L of +$3,100, delta = -$47 and theta = +$220. The Mar condor stands at a P/L of +$1,540 with a position delta of +$25, and theta = +$74.
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Most of you realize I am very skeptical of the utility of CNBC. Today was a good example. Everybody was upbeat and looking forward to wonderful things ahead. Economic recovery, strong earnings, all is bliss. Last week you would have been tempted to slice your wrists after watching for a few minutes. The point to remember is this: one of the key success factors in trading is emotional control. That is why trading systems and their rules are so helpful - they keep our emotions in check. If you are a delta neutral income trader then this message is doubly important; I really don't care where the talking heads think the market is heading; I am just playing what the market does today.
The ISM manufacturing data this morning was a large boost for the markets. That index reported its highest number (58.4) since 2004. That manufacturing data together with a weaker dollar appeared to encourage traders. Another positive sign was strong buying right into the close of trading today. The RUT closed at $609, up over $7. The SPX ran up over $15 to $1089.
My Feb RUT iron condor now stands at a P/L of +$2,000, delta = -$33 and theta = +$232. This condor is now almost perfectly positioned at about plus or minus one standard deviation each way and theta is building nicely. On the other hand, my adjustments have narrowed the field here so it is likely we will be closing this condor early unless the market just trades sideways from here.
My March RUT iron condor has also moved into the black with an overall P/L of +$960, delta = +$27, and theta = +$72. In spite of my warnings above, we are all tempted to be looking forward - just don't act on it. In that spirit, is the correction over?
