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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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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 opened up a bit this morning but then slowly declined through most of the afternoon. This appears to have been fed by the strengthening dollar that rose almost 1% today. RUT closed down almost $6 at $598 while the SPX seemed to be using $1090 as support today and closed at $1092, off over $11. Both of these indexes are continuing to trade in this narrow range that has held for about one month. The talking heads seem to be consistently talking about how the fundamentals do not support these market levels; my contrarian bias makes me look for a resumed up trend on that basis alone (although I happen to agree with the talking heads on this point). We'll see. In the meantime, just play what the market gives you.
My Dec RUT condor now stands at a P/L of +$1,530, delta = -$98 and theta = +$213. Today's move downward relieved some of the pressure on the 630/640 call spreads that now stand outside of one standard deviation OTM. Today's market also improved my Jan RUT condor with a P/L of +$540, delta = -$47 and theta = +$102. Those call spreads at 650/660 are also now greater than one standard deviation OTM. So, for now, all is well in iron condor land.
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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.
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Trading today was largely choppy and sideways, with few news events or other catalysts to move the market one way or the other. The indexes opened the day modestly higher, then traded sideways until about 2:30 pm ET, when stocks broadly sold off. But the indexes had recovered much of those losses by the close of trading. RUT closed essentially unchanged at $604 while the SPX closed down about $3 at $1103.
My RUT Dec iron condor stands at a P/L of +$990, delta = -$120 and theta = +$230 and the Jan condor stands at a P/L of +$340, delta = -$61 and theta = +$98. The call spreads in both condors are about one standard deviation OTM.
Many options educators will tell you that the market makers take all of the time value for the weekend out of option prices early in the afternoon on Fridays. Thus, it would pay you to close your OTM spreads Friday afternoon rather than wait until Monday, thinking you might gain from additional time value decay. I wanted to test this idea with the following RUT put spreads, currently held in several of my accounts: 500/510, 540/550, and 550/560. About 20 minutes before the close Friday, I checked the closing prices for these spreads and then compared those prices this morning after about 30 minutes of trading. RUT was up about $5 this morning, so I adjusted my put spread prices based on their deltas. What I found was I could close all of my put spreads at better prices this morning and only a small portion of that improvement was due to RUT's increase in price. My 500/510 puts could be closed this morning for $0.15, an improvement of $0.05 over Friday, for options with zero delta. My 540/550 puts could be closed this morning for $0.45, an improvement of $0.15 over Friday. Delta only accounts for $0.04 of this change. My 550/560 puts could be closed for $0.55, a $0.30 improvement over Friday, and only $0.10 of this improvement could be attributed to RUT's price change.
Based on this limited data, I conclude that some of the weekend's time decay may be priced into the options on Friday, but certainly not all of the time decay was accounted for in these RUT options this weekend. In every case, I would have been better off to have closed my put spreads this morning. So RUT market makers may begin to adjust for time decay to some degree on Friday, but clearly not all of the weekend's time decay was pulled out of these RUT options early this particular weekend.
