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The market opened on a down note this morning, based on the increase in the November Producers Price Index, and a surprising drop in the Empire State Manufacturer's index, a survey of New York state manufacturers. The Empire index came in at 2.6 for December, down from 23.5 in November. This is the lowest value since July. But the market shook that off and recovered most of the losses through the balance of the day, but then sold off to about where the markets opened. RUT closed at $606, down $3 while the SPX closed down $6 at $1108.
It appears to me that the bulls are not sufficiently concerned about this market to sell and take their profits off the table, but they aren't willing to continue buying either. A significant piece of economic data is required to tip this market one way or the other. Next stop: the FOMC announcement tomorrow.
My Jan condor on RUT at 510/520 and 650/660 stands at a net profit of $1,180 with delta = -$84 and theta = +$118. My latest RUT condor at 570/580 and 630/640 stands at a P/L of -$50, delta = -$36 and theta = +$63.
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The markets opened in positive territory this morning on overnight news that Dubai World appears to have solved its debt liquidity problems, at least for the time being. And Exxon-Mobil announced its planned acquisition of XTO Energy this morning; this encouraged investors that the merger/acquisition business may start to resume. The dollar traded downward today, which probably helped stocks to trade higher, although that influence appears to be waning. The Russell 200 Index (RUT) traded up steadily all day to close at $610, an increase of over $9. Trade in the S&P 500 (SPX) was more choppy, but closed up almost $8 to close at $1114, a new closing high for the year (the year's high of $1119 was intraday).
The strong increase in RUT pulled the P/L of my Jan iron condor back a bit to +$940, with a delta = -$86 and theta = +$121; the delta of my short $650 calls is just under 16. I decided to add a new Jan condor on RUT with 10 contracts of the 630/640 calls at $2.55 and 570/580 puts at $2.10. This is a shorter term (31 days) iron condor with the spreads positioned much closer to the index (the calls are at 0.5 standard deviation and the puts are at 0.7 standard deviation). This is a more dangerous configuration of the iron condor and must be carefully managed; on the plus side, we should be in and out of this position much more quickly than our normal condors positioned out about 50 days or so. At the end of the day, this position stood at a P/L of -$100, delta = -$34 and theta = +$60. Traders are looking forward to the FOMC meeting later this week, but it is doubtful that they will make any moves that surprise the market. Of course, it is in precisely this complacent situation when any surprise has a huge impact.
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Today's trading was again characterized by slow, choppy action with little overall direction.The SPX closed up over $6 at $1102 while the RUT traded down almost $3 to settle at $595. This market appears to be trapped in this range without sufficient confidence to drive higher, but also without a stimulus to start a downward trend. Most signs of economic recovery are muted, leaving traders without the confidence to buy strongly across the board. Recent unemployment numbers are a good example; a drop from 10.2% to 10.0% was greeted as good news by many, but the reality is that 0.2% in within the error of measurement. It is difficult to draw a confident conclusion one way or the other.
In the meantime, this channel bound market is perfect for my iron condors. The Dec RUT iron condor now stands at +$2,390, delta = -$44 and theta = +$180. Tomorrow I will look hard at closing the 630/640 call spreads, but the 500/510 put spreads will most likely be allowed to expire worthless. The Jan RUT iron condor at 510/520 and 650/660 has 35 days left but is well into the black with a net gain of $1,360, delta = -$33 and a positive theta of $97. Only one more week remains in the December options.
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The markets traded lower this morning but then steadily gained all afternoon to close with small, but broad based gains. RUT closed up $5 at $600 and the SPX inched up another $4 to close at $1106. These market gains came in the face of a stronger dollar, which is a reversal of the trend of the past several months when stock gains appeared to be tied to a weaker dollar.
The 500/510 put spreads in my Dec RUT iron condors now stand at 4.2 standard deviations OTM and the 630/640 call spreads stand at 1.5 standard deviations OTM. I closed the twenty 630/640 call spreads for $0.25. I will allow the 500/510 put spreads to expire worthless. Assuming those spreads do expire worthless, our Dec condor will finish at a net gain of $2,450 or 15%. My Jan condor stands at a P/L of +$1,260, delta = -$53 and theta = +$108.
This Dec RUT iron condor trade has some lessons in it so let's perform the post mortem: it began with 20 contracts of the 500/510 puts and 20 contracts of the 660/670 calls for a total credit of $3,800 with 51 days to expiration. The RUT first threatened our put spreads and our total adjustments on the put side cost us $360. About that time, we closed the 660/670 calls for a gain of $1,100 and opened 20 contracts of the 630/640 calls for a $2,400 credit. But that move proved to be too aggressive since we then spent $2,090 protecting our call spreads as the RUT moved upward. If I had not rolled those calls downward, this condor would have finished at a gain of $3,440 or 21%. The lesson is: when your adjustment triggers are tripped, move promptly with the planned adjustment, but be very cautious about rolling spreads up or down in an attempt to increase your gains. You may be moving too close to the fire if the wind changes.
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Markets traded in a sideways, lackluster way throughout the day. Most of the day was spent slightly underwater, but the buyers came back in around 2:00 pm and pushed the markets back to miniscule gains. RUT closed unchanged at $598 while the SPX moved up $4 to close at $1096. This a wonderful market for delta neutral traders, but it certainly is boring.
My Dec RUT iron condor now stands at a P/L of +$2,150, delta = -$72, and theta = +$164. I will probably be closing the 630/640 call spreads this Friday or possibly Monday because they will most likely be within two standard deviations (now at about one and a quarter standard deviations OTM). I will allow the Dec 500/510 put spreads to expire worthless. My Jan condor stands at a P/L of +$900, delta = -$50 and theta = +$103. So we wait to see if we just continue this slow sideways march into the end of the year. Traditionally, the funds and institutions are buying toward the end of the year to shore up solid year-end numbers, so perhaps this market will hold in this neighborhood for a while.
