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As many expected, the jobs report wasn't pretty, but the market didn't panic. From a technical perspective, support held and the underlying bullish sentiment still appears to be holding. RUT closed at $580, down about $4 and right at its support level set several weeks ago. Similarly, the SPX closed down at $1025, within the support range set in late August.
I sold my Nov $570 put for $21.30 ( a $30 loss). I purchased this put yesterday morning to protect against the slide ongoing in yesterday's market and as insurance for this morning's reaction to the jobs report. My Oct condor could still use the protection, but my short $550 put is now one standard deviation OTM and I don't have much profit left in this trade to pay for the insurance. When it appeared the RUT had settled at support, I took a risk and sold the long put. My Oct condor now stands at a P/L of -$1,415, position delta = +$72, and theta = +$116. A delta/theta ratio of about 1:1 is one of my "lines in the sand". This condor needs several days of sideways trading to salvage a profit. The Nov condor stands at a P/L of +$100, position delta = +$21, and theta = +$66. These Greeks look good, but we still have a lot of time exposure in this position. Next week appears to be a little less loaded with heavy economic reports so maybe we can catch a breather.
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Sorry I am late with the blog. After I adjusted my positions this afternoon, I replaced the brakes on one of the cars and it took longer than I expected - a common characteristic of my home projects. Yesterday's market weakness spilled over into today; there were several economic reports, but nothing really dreadful. Many observers of the market are speculating that people are taking money off the table in anticipation of tomorrow's unemployment report. We'll see. One thing's for sure - it will be a volatile day.
RUT closed down over $20 at $584 and SPX dropped to $1030. Note how both indexes held up right at the support level set in late August. If they break that support level tomorrow, SPX could challenge the $1000 level and RUT's next support is around $575 and then $550.
About 12:30 this afternoon, I decided to adjust my Oct condor, partly because of today's downward move and partly in preparation for tomorrow. Before the adjustment, the position's delta stood at +$47 and theta was +$116. That wasn't too bad, but I decided to cut those deltas just in case this market gets ugly. I bought one Nov $520 put for $21.60. I chose that strike for the larger delta impact. At the close, delta = +$14 and theta = +$88. The Nov condor stands at a P/L of +$20, delta = +$19 and theta = +65. Tomorrow should be interesting.
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The market opened strongly this morning, buoyed by a better than expected home price report, but 10 am brought a disappointing consumer confidence report and that threw cold water on the trading for the balance of the day. However, the good news is that the market found support rather easily and didn't give up any significant losses. So the underlying bullish trend appears intact. RUT closed down about $3 to $610 and the SPX closed down about $2 to close at $1061.
This sideways market action is great for my iron condors and they are almost unchanged from yesterday: my Oct condor stands at a P/L of -$680, delta = -$19 and theta = +$125; both short options are greater than one standard deviation OTM. The Nov condor stands at a P/L of -$140, delta = -$43 and theta = +$78. The short $680 call now stands just inside one standard deviation with a delta of 13. This trade still has 51 days until expiration so we cannot tolerate much of an upward move in RUT over the next week, or we will have to adjust our call spread position.
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An old friend of mine used to say, "he's as nervous as a long tailed cat in a room full of rockers". That describes the current market climate pretty well. Before the market opened this morning the S&P futures were pointing to a positive opening, based on some positive earnings announcements and the upward revision of the second quarter GDP. And the market did open and trade up, but it didn't last long. The Chicago Purchasing Managers Index (PMI) for Sept was released a few minutes after the market opened and stocks plummeted. The ADP payroll data showing the loss of 245k jobs in September didn't help - and this sets up anticipation for the jobs report Friday. It is hard to predict the direction, but a volatile reaction to the Friday jobs reports appears likely.
I don't know if many of you follow candlesticks as a technical indicator. I am not a "true believer" but I do think the interpretation of the basic candlestick pattern does have some merit. For example, today's candlestick on RUT and SPX wasn't quite what they call a "hanging man" - the tail was not nearly long enough. But think about what that pattern tells us about the "tug of war" in the marketplace. The bulls had control for a few minutes this morning and drove the prices up, but quickly were overrun by the bears and they took it down near the lows of last week. But then the bulls reasserted themselves and pulled it back and erased much of the loss before the day ended. My conclusions are: 1) the bulls remain the dominant force in this market; they have repeatedly come in the market late in the day and pulled this market back up. But 2) there are a lot of nervous traders in the market that are ready to turn bearish in a split second. So we have a bullish trend, but it is hard to predict what might cause a panic run to the exits that the bulls will be unable to contain.
My limping Oct condor is doing well, or at least as well as one can expect with a P/L of -$605, delta = +$11, and theta = +$112. I didn't point it out earlier, but when I rolled the calls and puts of this condor upward, I could have increased the size of the position and salvaged more profit; but that would have increased the risk of this position, and I am trying to show how a conservative trader can manage these iron condors. If the market continues trading sideways, this position will break into the black early next week, but I will have a minimal profit for October, if I salvage a profit at all. The Nov condor is faring well with a P/L of -$40, delta = -$25 and theta = +$78. Hang on for the ride...
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The markets traded up strongly this morning and then held pretty steady throughout the day. Financials and technology led the charge early and the financials ended the day up over 2.8%. However, trading volume was low due to Yom Kippur. Tomorrow brings the potential for higher trading volume, the consumer confidence report and the housing price index data. We'll see if that data dampens any of the merger euphoria that drove today's markets. A strong day like today on greater than average trading volume would be very bullish.
RUT closed at $613 and the SPX closed at $1063. My Oct condor stands at -$870, delta = -$23 and theta = +$129. The short $660 calls are now well outside of one standard deviation at $651. That is comforting but these feelings of confidence can be fleeting. My Nov condor stands at a P/L of -$240, delta = -$40 and theta = +$77. The delta of the $680 call is up to 14, nearing our adjustment zone. So for now, we just watch and wait.
