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Today's S&P quarterly rebalancing and quadruple witching options expiration stimulated a high volume trading day (over 2 billion shares traded on the NYSE) but the markets didn't really do much - mostly choppy, sideways trading. The Russell 2000 Index settled at $617.54 and closed today at $617.88. That translated to very little change for my Oct iron condor with a net P/L of -$1,631, position delta of -$25 and position theta of +$83. My Nov $630 call is hedging my remaining seven Oct 640/650 call spreads. If the RUT trades higher, I'll close or roll the remaining 640/650 calls; sideways or downward action may allow me to minimize the damage. Next week, I will start to look at establishing some November positions. A side note: RUT's implied volatility has been steadily declining since mid-June (as any of you who have been trading calendar spreads are painfully aware); it is now down to 27%, a 52 week low. That translates to my either having to accept smaller credits for my iron condors or making it necessary to choose strikes that are closer to the index price. Of course, if you position your strikes based on a standard deviation calculation, that includes that adjustment. But declining IV helps my wounded Oct iron condor.
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Many market observers have been waiting for a pullback (me included) and even though the markets slowed a bit today, it wasn't much of a pullback. RUT closed down about $2 at $615.47, not much of a net change. SPX closed down about $3 at $1065.49. Pulling back to a support level in either index would require much larger price drops. If you look at the RUT chart over the past year, the nearest support level is around $585 to $590 (I don't believe in citing overly precise support and resistance levels as some do; the reality has a bit more "fuzziness" associated with it). Actually, after my mistake in not closing my Sept $620 calls earlier this week, I expected the RUT to drop a lot today - that had a certain perverse logic.
My October iron condor position remained unchanged today at a P/L of -$1,724, delta = -$20, and theta = +$83. My theta/delta ratio is strong. I still have 8 contracts of the $640/$650 calls that are in trouble, but the one long Nov $640 call is hedging that position well. My rolled $660 calls are in the "red zone" at a delta of 16, whereas my rolled short puts at $550 are fairly comfortable at a delta of 11. Further strong moves upward will force me to close the $640/$650 calls at a minimum and look for a reasonable credit at $680/$690, but we may be getting too close to expiration for that (rolling to the current $660/$670 may be too dangerous).
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The markets began the day somewhat weak, but then seemed to slowly but steadily strengthen as the day went on. Traders took some confidence from the increases in the August PPI numbers - higher prices normally suggest more demand for goods. RUT closed at $605 and the SPX closed at $1053. Seven of the last eight trading sessions have been positive gainers - a rather impressive record.
My September iron condors are being squeezed on the topside; I am looking for the right opportunity to close the $620/$630 call spreads. The position stands at +$2,050, delta = -$244 and theta = +$1,418. That large delta reflects how close the index is to our short call strikes - truly alarming if we weren't so close to expiration. I added a Nov $640 call to my Oct iron condors today for $1,160. They now stand at a net loss of -$465, delta = -$53 and theta = +62. If the markets continue upward, I will add one more long Nov call.
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This market continues to amaze me. Nearly any technical indicator you may follow would suggest this market is severely overbought, but it just keeps making new highs. My trading today illustrates a common rookie mistake (to my embarrassment). I have been preoccupied with cleaning up the mess from the hackers' attack on my web site for the past few days. I should have closed the 620/630 call spreads in my Sept iron condor Monday or Tuesday, but I closed them first thing this morning, and gave back a lot of profit. The lesson here is to stay focused; I had become complacent, thinking my Sept condors were "in the bag" and then was distracted. Iron condors are dangerous animals and need to be treated with respect.
I closed 30 contracts of the Sept $620/$630 call spreads in the first hour of trading this morning for $0.72. I will allow my 10 contracts of $500/$510 puts and 20 contracts of $480/$490 put spreads to expire worthless. That will result in a net gain of $1,630 or 6.4% on capital at risk. I spent $340 on the put hedge early in the trade and $570 on the call hedge later in the trade; those are the "insurance" premiums. But the failure to close the call spreads earlier cost me at least $1,000.
I decided significant adjustments were in order for my Oct iron condors today. You may recall I have 15 contracts of the $460/$470 puts and 15 contracts of the $640/$650 calls with one Nov $640 call as up side hedge. Today I closed 7 of the $640/$650 call spreads for $2.50 (a loss of $1,120) and rolled them to $660/$670 for $1.05; I also closed all 15 of the $460/$470 puts for $0.20 (a gain of $750) and rolled them to $540/$550 for $0.70. I left the Nov $640 call as protection for the upside. This leaves my Oct position with a maximum potential gain of $2,385, delta = -$27 and theta = +$76. These are tough markets for delta neutral traders. You must stay on your toes and adjust promptly to remain in the game.
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As some of you know, my web site was hit by hackers last week and my blog has been incapacitated until earlier today. We closed the holes and are in the process of moving to a more secure hosting environment. I added one additional feature when bringing the blog back up. You can now click on the Comments link and add your comments or questions to the latest blog entry.
The markets started the day with weakness and traded sideways through much of the day. Then traders began buying and pushed stocks higher, forcing many short positions to cover late in the session, forcing prices even higher. RUT closed at $600, a new high for the year. My Sept iron condors now stand at a net gain of $2,550 with position delta = -$166 and theta = +$680 - huge theta! The delta of the Sept $620 calls is 9, slightly over one standard deviation OTM. Unless the RUT pulls back quite a bit, I will be closing the call spreads sometime before Thursday's close.
My October iron condors are near breakeven at -$95 for the overall position and position delta of -$80 and theta = +$71. The delta of the short $640 calls = 18. Both the theta/delta ratio having dropped below 1:1 and the short delta of 18 are dictating an adjustment. If the market continues higher tomorrow, I will be looking to buy at least one Nov $640 call.
