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A few weeks ago, it was common to see the market trade downward, but see the buyers come in late in the day and take control to push it back up. Now we are seeing the sellers seizing every opportunity to take their profits. Today's markets opened lower but were buoyed by a positive consumer confidence report for January this morning. This led a surge in the stock markets and boosted the S&P 500 to above its strong resistance level at $1100. But the selling began around 2 pm and continued throughout the remainder of the trading day. The SPX lost almost $5 to close at $1092 while the RUT closed at $612, down $6. Good earnings reports have generally been met with profit taking with the exception of AAPL, which is trading strongly after its excellent earnings report last evening.
My Feb RUT iron condor stands at a P/L of +$1,500, delta = +$64 and theta = +$77. The delta of the short 570 puts is 16. Both this delta and the theta/delta ratio near 1:1 tell us we are near a possible adjustment if the RUT drops much more.
My Mar RUT iron condor is roughly at breakeven with a P/L of +$100, delta = +$11 and theta = +$70. It is interesting to note that the delta of the short 570 puts is 24. But I have not required an adjustment to this position because adding the 670/680 call spreads balanced out the overall position delta. So our downside price risk is minimal. The risk/reward chart shows that this position will have a maximum loss of the order of $1000 or less down to RUT = $595 or so. When you have the standard iron condor configuration, watching the short option delta is a good adjustment trigger, but when you have mixed some of the spread positions, you must primarily watch your overall position delta and the theta/delta ratio.
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The markets opened up strong this morning but the existing home sales report at 10 am this morning sent the markets downward (Dec sales down 17%). The markets recovered from that through the balance of the day, but selling during the last hour of trading erased many of the gains. The SPX rose $5 to close at $1097 while the RUT was nearly unchanged at $518. The VIX pulled back to 25%. Trading volume was generally below recent averages, so the market's participants do not appear to be fully convicted in either direction.
Friday left my condors in need of some adjustment and initially this morning it appeared that might not be necessary. But later in the morning, I decided to make some changes. I left the Feb RUT iron condors as they were because the overall delta of the position was not really out too far. That position now stands at a net profit of $1,700, delta = +$46, and theta = +$73. The delta of the Feb $570 puts is now just under 16 - not too bad, but still close to my adjustment trigger. I considered several different adjustments to the Mar RUT iron condor but settled on adding ten more contracts of the 560/570 puts at $1.75 and ten more call spreads at 670/680 for $1.45. Thus, my Mar condor now consists of ten 690/700 calls, and ten 670/680 calls, and twenty 560/570 put spreads with a total P/L of -$20, delta = -$14 and theta = +$57. The balance of the week is loaded with economic reports and earnings announcements, so it is unlikely this market is just going to trade sideways. If you are unable to watch the market throughout the day, you might consider moving up your stop losses to be even more conservative given the recent volatility.
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Obama's next move to shore up his political position after the embarrassment in MA was to declare war on the banks; after all, it worked for Jesse James, didn't it? No one likes banks. The news sent the financial stocks and the rest of the market plunging this morning, and unlike other recent sell-offs, the bulls didn't come to the rescue late in the day. News of rising new unemployment claims fed concerns that the economic recovery is far from a certain reality. RUT broke its support level at $633 and closed at $628, just above the next support level of $625, established back in September and October (the double top). SPX traded similarly and closed down nearly $22 at $1116.
My Feb 560/570 and 690/700 iron condor now stands almost perfectly delta neutral with a P/L of +$1,800, delta = +$9 and theta = +$84. I established the beginnings of my March iron condor today with 10 contracts of the 560/570 put spreads for $1.27 and 10 contracts of the 690/700 call spreads at $1.11. Over the next several days I will look for an opportunity to add to the March position. More and more of the talking heads on CNBC are talking about a possible correction, but I have found it best to ignore them and simply follow my trading plan for how I enter my iron condor positions. My only concession to all of the talk of corrections is to scale into my March position with ten contracts today and add more later.
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Concerns about the administration's attack on the banks led financial stocks downward yesterday. News that Bernanke's reappointment may be in trouble sent jitters through Wall Street and increased the selling pressure. In this environment, good earnings reports are leading to selling pressure; Google, AMD, Capital One, and American Express all took it on the chin after beating estimates. The VIX spiked to 27% after being at new lows around 17% just a few days ago. Investors Business Daily (IBD) changed their market posture to "Market in Correction" (if you aren't familiar with IBD either via the newspaper or their web site, you should check it out - excellent investing resource). RUT closed down $11 to $617, breaking the strong support level at $625 set by the double top back in September and October. The next support level isn't as well defined in the $590 - $600 range. SPX closed down almost $25 at $1092, just below its long time support level at $1100.
These big downward moves have not tripped my stop losses, but they have pushed both of my condors to an adjustment point. I was in Chicago all day Friday at a trading conference sponsored by Know Your Options. This is a good example of why you have contingent orders entered with your broker to protect your positions. So I will be adjusting both of these positions Monday unless the market strengthens. The Feb iron condor stands at a profit of $1,140 with a position delta of +$43, and theta = +$71. The Mar iron condor stands at a P/L of -$170, delta = +$5 and theta = +$29.
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The markets opened down today based on a stronger dollar and some reported bank lending policy changes in China. But bullish sentiment is still predominant. Pullbacks such as today's are viewed as buying opportunities. Support levels have been established over the past couple of weeks for RUT at about $633 and SPX at about $1130. RUT hit $633 at about 11 am this morning and then traded steadily higher to close at $640, down a little less than $10 for the day. The SPX dipped below its $1130 support level twice today, but buyers came in and traded the SPX higher from about 1:15 pm into the close at $1138, down about $12 for the day. However, the predominance of bullish sentiment is of concern; often that is a sign of a market top. But one of the advantages of being a options income trader is that I don't have to predict the market's turns.
My Feb iron condor stands at a P/L of +$2,020, delta = -$17, and theta = +$82. Assuming no big changes in the market tomorrow, I will be establishing at least a portion of my March iron condors tomorrow.
