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Trading started off in the red this morning and never varied from that pace. The Russell 2000 Index of small caps was particularly hard hit today, dropping over $12 to close at $580. Meanwhile, the SPX dropped a similar amount in absolute dollar terms, $11.27, but about half as much in percentage terms, to close at $1087. The dollar's strength again appears to be the impetus behind today's stock market weakness. Unemployment claims numbers were actually a little better than expected, but the federal deficit hit a new high at $176 billion and analysts were expecting $150 billion.
My Dec iron condor now stands at a P/L of -$20, delta = -$5 and theta = +$88. I still have the Jan $630 call hedges in place but the delta of the Dec $630 calls has dropped back to 16, so I may sell those call hedges tomorrow unless the market rebounds. The volatility of this market makes it very challenging to trade these delta neutral strategies.
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The markets opened up strongly this morning; RUT ran to $597 before pulling back to close at $593 at the end of the day (up almost $6). The SPX actually broke through resistance at $1100 to $1105 but couldn't hold it and closed at $1098.51. As in recent markets, the stock trading was tied inversely to the strength of the dollar. The dollar traded lower this morning, but then strengthened. Gold hit a new record high of $1118/oz before pulling back.
My Dec iron condor on RUT now stands at a P/L of -$350 with delta = -$25 and theta = +$87. I have clipped a shot of this position's risk/reward chart below. Note the effect of the Jan $630 call hedges; the red line is today's risk/reward curve - follow it with increasing price gains on RUT. Do you see how this hedge allows me to stay with this position and allow RUT to run as high as $620-$630 and constrain my position losses to about $2000? The advantage of this type of adjustment is giving the market time to turn back or trade sideways and therefore a chance to salvage my position. So we wait and see.
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News that the G-20 and Treasury Secretary Gaithner believe economic stimulus should be continued sent the dollar down and gold and stocks up today. Today's strong run upward stood in sharp contrast to the doldrums in the markets Friday. RUT ran nearly $12 to close at $592 while the SPX closed at $1093, up almost $24. RUT convincingly broke through resistance at $585 while the SPX is nearly at the $1100 level it could not break through a few weeks ago. Trading volume was up across the board, so today's move appears to be a convincing end to the correction that began in mid October.
My contingency orders kicked in early this morning to purchase two Jan $630 calls at $11.00. Before that adjustment, my Dec condor stood at a P/L of -$460, delta = -$76 and theta = + $112. At the close, the position was at -$250, delta = -$17 and theta = +$75. The adjustment protected the overall position P/L and cut delta way back, while not sacrificing too much theta. The theta/delta ratio is actually stronger after the adjustment. Now we wait to see if SPX can break $1100 - that would be very bullish.
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Trading started in positive territory this morning, but within an hour, it had turned negative. The Russell 2000 Index (RUT) traded downward most of the day and recovered some during the last hour of trading but closed down at $587, just above the support level broken yesterday. The S&P 500 (SPX) also traded up initially and then downward all day. But the SPX regained all of its losses in the last hour to close virtually unchanged at $1093, just below the strong resistance at $1100.
My Dec iron condor was helped somewhat by the modest pullback on RUT to close with a P/L of -$10, delta = -$13 and theta = +$77. I still need the protection of the Jan $630 calls since my Dec $630 calls still have a delta of 20. It may prove difficult for SPX to break $1100 and RUT to break the resistance at $625 set with the double top in September and October. The markets may well trade in this range for a while. But this market has been proving everyone wrong of late, so be sure your contingency orders are in place.
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The unemployment report of 10.2% was greater than the 9.9% expected and caused a minor pullback in the markets at the open, but buyers quickly pulled it back up. Although the market basically traded sideways all day, I think this shows considerable buying strength for this market. RUT closed essentially unchanged at $580 and the SPX closed up about $3 at $1069.
My Dec iron condor on RUT now stands at a P/L of -$100, a position delta of -$42 and a position theta of +$103 - solid greeks with theta/delta > 2:1. When the market turned bullish early this morning, I entered a contingency order to buy protective Jan $630 calls if RUT broke through resistance at $580-$585 (I set the trigger at $587). Because of my aggressive rolling down of the call spreads early this week, I now have a fairly aggressive iron condor position at $500/$510 and $630/$640. We still have a lot of time left in this trade at 41 days. Stay tuned.
