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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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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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Apparently the bulls came back from the long weekend ready to buy in earnest. Citigroup's earnings report wasn't very positive in any respect: current quarter losses and a pretty pessimistic outlook. IBM reported earnings that beat expectations with a 9% increase, but this was with only a 1% increase in revenue growth - earnings delivered via cost cutting, not a sign of healthy growth. But the bulls were not to be dissuaded; they took the S&P 500 to new 52 week highs of $1150, up over $14 today. The Russell 2000 index (RUT) also closed at a new 52 week high at $649, up over $11. The previous highs were set last Thursday at $1148 and $646, respectively. These new highs also came in the face of a stronger dollar, a marked change from recent months. All this euphoria worries me.
My Feb iron condor stands at a P/L of +$1,380 with a position delta of -$62 and theta of +$106. The delta of the $690 calls = 11, so we are not yet close to adjusting, but this market seems pretty strong. But we trade what we see, not what we expect.
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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.
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The complete record of the trades in the account being traded in this blog from May 29, 2009 to date is displayed below. The account began with $40,238 and today's balance is $55,427, a total gain of 38%.
Dr. Duke practices what he preaches.
