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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.
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CSCO's strong earnings report appeared to energize the market and it opened strong this morning but the surprise (to me at least) was that it continued its steady upward march all day long. I expected some traders to take profits toward the end of the session, given the upcoming unemployment report in the morning, but everyone appears confident that unemployment will rise only a little to 9.9% and that is apparently considered further confirmation that the worst is behind us. RUT ran up $18 to close at $581 while the SPX closed at $1067, up a little over $20. RUT is just entering a resistance level at about $580 to $585 while the SPX will be running into resistance at about $1070. If they break those levels tomorrow, then this correction may be over; if you look at the peak to trough move on the SPX, it was about 6%. Most market technicians would expect a move of about 10% for the normal correction...
My Dec $510 puts are out of the woods for now with a delta at 15. However, I may regret aggressively having rolled my call spreads down to 630/640 on Monday. The $630 strike feels a little too close after today's $18 run upward. A few days makes a big difference in this volatile market. My Dec RUT iron condor now stands at -$560, delta = -$43, and theta = +$104. Tomorrow should be interesting...
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The market's indecision we observed yesterday continued with sideways, choppy trading. Some late session buying pushed the RUT and SPX into positive territory during the last hour of trading, but barely positive. RUT closed at $571 and the SPX closed at $1045. The broader market appears to lack clear direction; a large number of companies are reporting earnings this evening; that may push the market one way or the other for tomorrow's open.
I still have the Jan $510 puts hedging my Dec iron condor. The Dec $510 puts have edged their delta back down to 19. This position is right at the tipping point. If RUT moves up from here, I will start to lose money on the hedge and will need to close it. However, a downward move in RUT will only result in very nominal losses due to the protection of the hedge position. The overall position stands at a P/L of +$70, delta = -$57 and theta = +$50. The beauty of a long hedge in the following month is that it provides strong delta protection but with minimal negative impact on our position theta.This gives you the patience to calmly watch the market and give it a chance to turn back upward or trade sideways from here; then you have salvaged a position that might have been closed otherwise. In the meantime, we simply trade our system in response to the market's moves - there is no need to predict the market's moves.
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Today's markets spent most of the day in slightly positive territory, became rather choppy after the FOMC announcement, and then sold off in the last 30 minutes. The FOMC basically gave the expected announcement, i.e., that interest rates will remain low for "an extended period" to stimulate the economy. That seemed pretty positive to me, but it apparently stimulated some significant volatility in the afternoon trading.
RUT closed down about $7 to $563 while the SPX closed in positive territory at $1047. I decided to sell the Jan $510 puts hedging my Dec put spreads at $12.20 this morning, resulting in a $100 loss. The late afternoon sell-off has my short put spreads back in a dangerous area, so I will be watchful until this market trades back up a bit or at least treads water for a few days. The Greeks of the Dec iron condor are pretty strong at a position delta of -$6 and position theta
of +$99.
The "earnings season" thus far does not seem to be giving the market participants much comfort. So we may trade in this basically choppy, sideways to slightly downward fashion for a while. But who really knows? That is why you must have a system and follow your rules.
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The markets opened this morning in positive territory, buoyed by some good economic and manufacturing reports. But that didn't last long and then the selling pulled the market down through most of the day before buyers came in and returned the major indexes closer to where they started the day. RUT ran up to about $570 and then down to $553 before closing almost unchanged at $562. The SPX closed up about $7 at $1043. And all of this occurred in better than average trading volume. That tells me there is significant indecision in this market; neither the buyers nor the sellers dominated with conviction. But given the volatility of this market, that is likely to change tomorrow.
During the weakness this morning, I decided to roll my Dec 660/670 call spreads down to 630/640. I closed the 660/670 calls for $0.40, netting a gain of $1,100 (20 contracts). I opened 20 contracts of the 630/640 calls at about one standard deviation OTM for $1.20. This left my Dec iron condor on RUT at a P/L of $180, delta = -$50 and theta = +$43. I still have the two Jan $510 puts hedging the downside.
