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The market opened weakly this morning, based on worries out of the Euro Zone. The Greeks were rioting in the streets, protesting the government's austerity measures necessary to receive their bail out funds. Meanwhile, yields on Spanish bonds exceeded 6% as investors worry about that economy needing a bail out as well. New home sales here in the states didn't help. They came in at an annualized rate of 373k; that was a 0.3% decline from July and analysts were expecting 380k.
SPX dropped as low as $1431 by mid-morning, but then struggled back upward a bit to close at $1433, down $8. RUT dropped $5 to close at $834. SPX now stands where it was after Draghi's press conference on Sept. 6 and before Bernanke's QE III announcement Sept. 13. After the run up on 9/6, SPX established support at $1430; today's action appeared to suggest that the $1430 support level held.
If the rally since early June is based on quantitative easing and now the consensus is turning to a conclusion that the Fed is out of ammo, and worries about Europe are returning, then we have a lot of ground that could be lost. Maybe that Goldman Sachs prediction around $1285 isn't that far off after all? That could be ugly.
I hedged my October iron condor on RUT today and it stands at a P/L of -$1,095 with position delta = -$7 and position theta = +$32. The small delta reflects the effects of the hedge, but you will see that theta was also reduced - that's the trade-off. But amid all of the worries in this market at this time, having such a small delta is comforting.
Be careful out there.
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The markets rose this morning on positive housing and consumer confidence numbers, but then the averages slowly declined all afternoon to close at or near lows for the day. SPX lost $15 to close at $1442 and RUT closed at $839, off $13 for the day. Trading volume picked up with 2.7 billion shares of the S&P 500 trading. Trading on the NYSE was up 20% and trading volume on NASDAQ was up 15%. The VIX increased a little over one point to close at 15.4%.
The Case Schiller housing price index increased 1.2% in July and consumer confidence came in at 70.3, up from 61.3. These numbers boosted the markets, but the euphoria was short-lived. SPX traded as high as $1463 before starting its slow descent. SPX has nearly given back the huge gains after Bernanke's announcement of additional Fed easing last week. RUT has now given back all of those gains, closing today near the $840 support level that was established after Draghi's press conference on September 6. SPX is sitting just above its support in the region of $1430-$1440. If we draw a trend line for this latest market rally that started in early June on the SPX chart, the bottom edge of this upward trend is $1430. So $1430 on SPX is a significant "line in the sand". Breaking $1430 could signal a break in this uptrend.
My Oct iron condor on RUT stands at a net P/L of -$940 with delta = +$57 and theta = +$94. Our theta/delta ratio is still strong, but the put spreads are beginning to be pressured. So the debate intensifies: is this bullish uptrend for real, or is a significant market correction around the corner?
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This was a slow week for the major market averages. SPX basically traded at $1460 all week. Today, SPX ran as high as $1467 before being pulled back to close unchanged at $1460. RUT closed unchanged at $856. Trading volume popped up on this expiration Friday with 3.5 billion shares of the S&P 500 trading. Trading volume on the NYSE increased 90% and trading on the NASDAQ increased 29%. VIX remains pretty low at 14%.
My September iron condor on RUT ends this weekend with the expiration of the 790/800 put spreads. That position ended up with a loss of $4,680 or 27%. This pulls our year to date record for the Flying With The Condor™ back to +30%, still an excellent record as compared with a gain of 16% for the S&P 500. The Oct condor stands at a P/L of -$920 with delta = -$24 and theta = +$113.
Enjoy your weekend.
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The major market indexes continue to basically trade sideways, but when one backs up and looks at the longer term trend, it still looks like a bull market. The S&P 500 is up about 16% this year, which is much, much better than last year's flat performance. But many traders, including me, are nervous. There are many reasons to worry about this market, but it seems to be climbing the proverbial wall of worry. SPX dropped off $3 to close at $1457 and RUT lost $4 to close at $852. Trading volume was naturally down a lot after expiration Friday with 2.2 billion shares of the S&P 500 trading; trading on the NYSE was down 51% and trading volume on NASDAQ was down 27%. The VIX is holding up rather well; it closed essentially unchanged today at 14.2%.
RUT is starting to give back much of Bernanke's rally from last week, but SPX is holding most of those gains intact. There wasn't any economic data of import today; some talking heads claimed today's market weakness was due to Europe's economic woes returning to the forefront. But I couldn't find any news stories behind those suppositions. Maybe traders are just feeling the same way I am - there is so much bad stuff either going on (like Europe) or in the near future (like the fiscal cliff), I just find myself half expecting the other shoe to drop at some point. But so far, that has been dead wrong.
My October RUT iron condor stands at a net P/L of -$400 with delta = +$7 and theta = +$105. So this position looks pretty good - unless that crash I fear comes to pass...
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The markets are hanging in there at these relatively elevated levels. SPX closed at $1461, up $2 and RUT dropped $1 to close at $856. As I was looking over the SPX chart a few minutes ago, it struck me how much of a step-wise pattern SPX has traded in for the past six weeks or so. SPX managed to break $1400 in early August but then just traded sideways until early September when Draghi's press conference comments propelled SPX to about $1435. But then we trade sideways until Bernanke, not to be outdone by Draghi, gives the market a boost and sends it to $1460. And here we are, almost a week later, trading sideways at about $1460. What does that tell us? I think it shows the remarkable support behind this market. Have we solved the European debt crisis? Has the economic recovery in the states started to accelerate? Has unemployment started returning to "normal" levels? Has the dreaded and much talked about fiscal cliff problem been solved? In spite of all of those rather significant economic "issues", the market's rally is intact (in my corporate career, we were always counseled to cast "problems" as "issues" in our management discussions). This bull market is not to be denied. Consistent with that view, the VIX dropped again today to 13.9%.
Trading volume rose slightly with 2.6 billion shares of the S&P 500 trading (the 50 dma = 2.5B); trading on the NYSE rose 1% and volume on NASDAQ rose 9%.
We had another dose of mediocre economic data today. Housing starts for August came in at 750k, up a bit from the previous month's 733k. Building permits dropped form 811k to 803k, but existing home sales rose from 4.47M to 4.82M.
My October iron condor position stands at a P/L of -$1,480 with position delta = -$27 and position theta = +$119. The 900/910 calls and the 790/800 puts are both about one standard deviation or more OTM with thirty days to go to expiration.
In the "interesting observations" column, I have entered a wide OTM butterfly spread on AAPL each summer for the past several years using January LEAPS options. Each year, AAPL has run too far, too fast and I have been forced to close the spread early - a nice gain, but not the great gain planned if we had made it to January. So this year, I entered the 670/750/830 call butterfly with Dec options, but AAPL has already broken through $700 and shows every sign of trying for $750 earlier than December. We're up 49% but it looks like we may be closing early once again this year. You will be telling your grandchildren about trading Apple back in the old days - it is an amazing story.
