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The markets opened up in positive territory today and backed off a bit after disappointing new home sales data was released. But a weakening dollar appeared to prop up the market and the major indexes held most of their gains into the close. Trading volume remained low, which makes these strong market gains the past few days rather surprising to me. I expected trading to be somewhat subdued this week with the holiday. The stock market prediction business is not for the faint of heart.
RUT ran up over $7 to close at a new high for 2009 of $631. The SPX closed for another 2009 high at $1121. Continued gains for RUT necessitated some adjustments in my Jan iron condors today. I bought two Feb $630 calls for $23.40 for my Jan 510/520 650/660 condor, resulting in a P/L at the close of -$280 with delta = -$97 and theta = +$94. Normally I would have purchased the Feb calls at the short strike of my Jan positions, but since I was adjusting both condors in the same account, I just purchased three Feb $630 calls. I bought one Feb $630 call for $23.40 for my RUT 570/580 and 630/640 condor; at the close, it stands at a P/L of -$980 with delta = -$54 and theta = +$27. These deteriorating Greeks show the stress on the call spreads for these condors caused by the relentless push upward over the past several sessions.The Feb calls will accomplish two things for me: 1) limit my losses on these positions if the RUT continues upward, and 2) buy us some time for this market to pull back into a better range for these positions. It is proving to be an interesting week.- Details
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Yesterday's buying continued today, setting new highs on the S&P 500 with a close at $1118. RUT closed near its highs for the year at $624. Surprisingly, this occurred in the face of a stronger dollar and downwardly revised third quarter GDP data. On the other hand, November existing home sales were up over 7% from October. VIX hit a new low for the year as it dropped below 20, but trading volume was low, raising questions about the ability of this market to follow through.
These increases on RUT are beginning to squeeze my Jan iron condors with the P/L of my Jan 510/520 650/660 condor dropping to +$860 with delta = -$166 and theta = +$147. The RUT 570/580 and 630/640 condor stands at a P/L of -$230 with delta = -$80 and theta = +$72. Both condors will require adjustment if RUT moves up much more. So we will see what presents the market has for us this week...
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After Thursday's strong down day, one might expect Friday's market to be up; at least, that has been a common pattern the past six weeks or so. Although Friday started out in the red, trading slowly climbed all day and had a final strong push during the last thirty minutes of trading. RUT closed up over $6 at $611 while the SPX closed at $1102, also up $6. Trading volume on the NYSE was the highest all year; normally, I would take that as a very bullish sign, but at least some of that volume was related to various options expiring. Positive earnings announcements from ORCL, RIMM and others certainly helped the market, but it seemed that the dollar giving back most of Thursday's gains did more for the market than anything else.
Friday marked the official end of my Dec iron condor on RUT as my 500/510 put spreads expired worthless to leave me with a gain of $2,450 or 15%. It is worth noting that this was not an easy gain; we had five adjustments and/or rolls during this trade. By contrast, my Jan 510/520 and 650/660 condor is now up $1,640 with 27 days to go and no adjustments whatsoever. The short term Jan iron condor at 570/580 and 630/640 stands at a P/L of +$500, delta = -$45 and theta = +$65.
Next week brings several economic announcements: GDP, home sales, personal consumption data, and the MI consumer sentiment index. Barring any surprises in these announcements, next week is likely to be slow and lacking clear direction, given the holiday and fewer people on the trading floors.
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Friday I predicted: "next week is likely to be slow and lacking clear direction, given the holiday and fewer people on the trading floors". Well, so much for that prediction! Today's markets were strong from the start, pulled back late in the day, but then resumed their upward gains into the close. Even more surprising, this stock market surge came in the face of a much stronger dollar, breaking recent tendencies for the market to trade inversely to the dollar. RUT gained over $8 to close at $619 and the SPX gained almost $12 to close at $1114. Tomorrow brings the GDP and existing home sales numbers. If I were venturing a prediction, I would expect the market to give back some of today's gains tomorrow - at least, that has been the pattern for the past six weeks or so. But positive economic news tomorrow morning may trigger additional buying.
My iron condors on RUT are performing well: the Jan 510/520 and 650/660 condor is now up $1,920 with position delta = -$116 and theta = +$113. The short term Jan iron condor at
570/580 and 630/640 stands at a P/L of +$200, delta = -$80 and theta =
+$76. Neither condor is near any adjustment triggers.
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Greece's debt problems appeared to be fueling a flight to safety out of competing currencies and to the dollar. The relationship of stronger dollar and weaker stock prices appears to be still holding. However, unemployment claims moved up a bit from last week and that didn't help the mood on Wall Street. RUT traded downward most of the day, but bounced off $600 and closed at $605, a loss of about $7 on the day. The area of $595 to $600 appears to be holding up well. By contrast, the SPX steadily traded down all day and closed down $12 at $1097, near its intraday low of $1096. Trading volume was up significantly, plus we didn't have buyers strongly entering the market late in the day as we have on recent down market days. That could be a warning sign.
This drop in RUT helped both of my Jan iron condors. The 510/520 and 650/660 condor stands at a P/L of +$1,940 with delta = -$61 and theta = +$114. The 570/580 and 630/640 condor I established a few days ago stands at +$300, delta = -$25 and theta = +$71. Trading the iron condor is emotionally challenging. At times like the past month, it is simply boring, while it can be a roller coaster ride as it was this summer and early fall. You must clearly have your trading rules in mind (preferably written down) and not allow yourself to manufacture new trades when bored or panic when the market moves against you and not make the adjustments in a timely fashion.
