Dr. Duke's Blog

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Written by Dr. Duke

Created: 03 July 2012

I am increasingly skeptical of anyone who tells me he understands these markets. The incredible bullishness of the past two sessions continued today, even on a holiday with an early market closing. SPX closed at $1374, up $9. RUT is trading even more aggressively, closing up $11 at $818. Trading volume was mixed, but still higher than one might expect before a holiday. Volume was up 42% on the NYSE. On the other hand, trading volume was down 3% on NASDAQ.

There wasn't any new economic data today to explain the strong rally on Wall Street. ADP's payroll report will come out Thursday and then we get the jobs report on Friday. Many will be watching the jobs report closely for evidence of more economic softening. Much of the recent data appears to be pointing to a slowing of the economy at best and perhaps a new recession at worst. That is what perplexes me about the strength of the market over the past three sessions.

My July condor is feeling the pressure of this market run with a P/L of +$1,360 with delta = -$92 and theta = +$125. The 850 call remains one standard deviation OTM, but the relentless push higher is being felt. The Aug condor stands at a P/L of -$1,980 with delta = -$50 and theta = +$51. It doesn't seem possible that this rally can continue, but maybe that is precisely what we are in for - hard to predict these things.

Enjoy your mid-week holiday. Remember to be thankful for your prosperity and your freedom. Those benefits are inextricably linked.

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Written by Dr. Duke

Created: 02 July 2012

I missed my blog on Friday. I was in West Virginia with my wife as she sold her mother's house and settled the estate. On Friday afternoon, a severe storm came through and all of the electricity went out. In fact, it still wasn't on Saturday morning when we left. 

Today's markets largely traded sideways today and seemed hesitant to add to Friday's huge gains. But then then the floodgates opened in the last hour of trading. This was a little surprising after the ISM manufacturing index reported out at 49.7 for June. This was the first time this index has indicated a contraction in manufacturing (any numbers below 50) since July 2009. Perhaps traders are seeing improved prospects for QE III if we receive more poor economic data? If so, this is strange reasoning: the economy is tanking so I'm bullish because the Fed will bail us out? Really? It will be interesting to see what the jobs report brings us Friday. Fewer jobs being added and higher unemployment numbers will cause the market to rally?

SPX closed at $1366, up $3, but RUT really took off in the last hour today: up $9, closing at $808. Trading volume dropped off to 2.4 billion shares of the S&P 500. Trading on the NYSE dropped 25% and volume dropped 5% on NASDAQ.

VIX fell slightly to 16.8%, so fear has lessened, but certainly has not disappeared. The holidays this week are a bit of a complication. The largest overhanging negative for this market is bad news out of Europe. Whenever our markets are closed and the rest of the world's markets are open, I worry a bit.

My July iron condor on RUT stands at a net gain of $1,920 on 20 contracts with delta = -$61 and theta = +$88. My Aug condor at 650/660 and 850/860 stands at a P/L of -$940 with delta = -$98 and theta = +$89. 

Remember that the exchanges will close early tomorrow and be closed all day Wednesday.

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Written by Dr. Duke

Created: 28 June 2012

The supreme court surprised everyone today by ruling ObamaCare constitutional. I didn't see that one coming. Most analysts see this as negative for businesses and hiring. Hence the markets traded down. SPX traded as low as $1313 before recovering to close at $1329, down $3. SPX rallied almost $13 in the last hour and a half of trading. RUT closed almost unchanged at $776. Today's trading is one more data point for the strength of the $1310 support level. Perhaps traders see the costs of ObamaCare as "baked into" current stock prices. Trading volume jumped up a bit with 2.8 billion shares of the S&P 500 trading; trading on the NYSE jumped 19% and increased 5% on NASDAQ. VIX spiked above 21% but then settled to 19.7%.

Final GDP numbers for the first quarter came in at an annualized growth rate of 1.9% - not great, but not a recession either. Initial unemployment claims dropped six thousand to 386k and continuing unemployment claims dropped fifteen thousand to 3.3 million. These aren't great numbers, but they aren't dreadful either.

My July condor position stands at a 15% gain with delta = -$13 and theta = +$32. I haven't seen any news out of the European Summit. Is Germany going to bail out the rest of Europe or kiss them good bye?

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Written by Dr. Duke

Created: 27 June 2012

Some modestly good economic numbers were enough to boost this market today, but the fear is still running high as evidenced in the VIX at 19.5%. Durable orders came in with a 1.1% increase for May and pending home sales were up 5.9% in May. This brought out some buyers who drove the SPX up $12 to close at $1332. RUT rose $11 to close at $776. Trading volume remains flat with 2.3 billion shares of the S&P 500 trading; trading volume on the NYSE was down 3% and trading on NASDAQ was up 2%.

While everyone is focused on the European Summit, it also seems like everyone on CNBC is telling us they don't expect anything substantive to come out of the summit. So we have heightened fear of what might come out of Europe coupled with low expectations. That is a formula for sideways choppy trading and I expect that is exactly what we are in for. The supreme court ruling on ObamaCare isn't likely to move the overall market much, in my opinion, but I could be wrong. We'll see. I think that event will be more fodder for the talk radio shows rather than market moving.

My July iron condor on RUT stands at a 15% gain with delta = -$17 and theta = +$27. At this point, there isn't much time value in those options, so the theta decay is pretty small. The primary question with this position at this point is whether to close it early or not. On the one hand, I can capture a nice 15% gain and go take a nap. On the other, the debits to close, while small, add up to real money on several hundred contract positions. We'll see. One thing I am not considering is rolling spreads up or down to increase my gains. I have learned the hard way that when I stretch for those additional gains, I often get in trouble... Some will accuse me of being boring, but I'm up over 30% at mid-year!

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Written by Dr. Duke

Created: 26 June 2012

Trading wasn't too bad today; the markets opened weakly, but started to gain modestly in afternoon trade. The Conference Board's consumer confidence survey came in this morning at 62.0 for June, down over two points from May. That put a damper on morning trade. European debt woes overshadow everything now. But the good news is that support in the market indexes appears to be holding for now. Probably the best we can expect is a choppy sideways market for the near future. However, additional poor economic data here in the states or more bad news out of Europe could easily push us over the edge. SPX closed at $1320, up $6 while RUT moved up $3 to close at $765. Trading volume was flat with 2.5 billion shares of the S&P 500 trading today. Trading volume on the NYSE was down 2% and volume was up 8% on NASDAQ. VIX dropped a bit, closing at 19.7%.

The Case Schiller housing price index dropped 1.9% in April, but the market was expecting a worse number, so this actually buoyed some buying, especially in the home builders. Trading will likely remain subdued in advance of the European Summit, but this market is rather fragile. Ironically, no one really expects any permanent solutions to come out of the summit, but everyone is focused on it anyway. I wouldn't want to trade the markets based on a sideways prediction at this point. Any little news clip could tip it over.

My July iron condor on RUT at 610/620 and 850/860 is roughly unchanged with a net gain of 15% and delta = -$2 and theta = +$20 (on 20 contracts).

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Written by Dr. Duke

Created: 25 June 2012

The markets tumbled at the open today and then traded sideways the rest of the day. It appears that traders started the week with very little confidence that the upcoming European summit meeting will yield anything substantive. The expected supreme court ruling on ObamaCare probably doesn't help the mood. Many traders are simply taking off risk and sitting on the sidelines until the turmoil subsides. SPX opened at the resistance level at $1335 where it closed Friday, but it immediately traded down from there. SPX closed at $1314, down $21. RUT also opened at a key resistance level at $775 and traded down to close at $762, down $13. RUT closed right at the 200 dma - will that act as support?

Trading volume dropped off dramatically with 2.6 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 20% and volume on NASDAQ dropped 34%. VIX spiked up over 21% but closed at 20.4%. So traders are certainly not calm, but the drop in trading volume and relatively low VIX seems to suggest a lack of panic. But the wild card is whatever news may hit the wire tomorrow - this type of market is very susceptible to big moves off seemingly minor stories.

My July condor continues to fare well with a net 15% gain and a position delta of +$0.09 - that is the smallest delta I have ever had on an iron condor in one of my accounts. This week is likely to be a wild ride in the markets. Keep your positions hedged and try to stay calm. Don't make any big bets either way.

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Written by Dr. Duke

Created: 22 June 2012

Markets pulled back significantly today and that certainly caused many traders to breathe a sign of relief. Yesterday was a scary day in the markets. Pull up a one minute chart of the S&P 500 from yesterday; it is unusual to see a one minute chart that is so steadily headed in one direction with almost no deviations at all for an entire trading session. But today was more normal with a lot of choppy sideways trading, but it stayed in the positive column and then traded strongly in the afternoon. SPX traded up $10 to close right at resistance at $1335. RUT likewise closed at resistance at $775, up $10 on the day. The fact that SPX didn't blow right through resistance on its way back north is significant, in my opinion. It means that we may not be going over the cliff, but don't be complacent. It's still dangerous out there. VIX dropped back to 18.1% which is somewhat reassuring.

There was no significant economic data released today. Moody's downgraded many banks last evening and the significant news was that bigger downgrades were priced into many of those banks. So today saw these stocks trading sideways or only minimally lower.

My July iron condor on RUT stands at a P/L of +$2,420 with delta = -$16 and theta = +$34 on 20 contracts. Several of my clients have asked me about closing this position and opening a new trade for July. There are many feasible ways to successfully trade options. My approach to non-directional trading isn't "the answer". I have traded condors much more aggressively in the past and it is certainly possible to aggressively roll spreads up and down and make much larger gains - but this also exposes you to much more risk. And every once in a while, the market whipsaws and runs over you. My trading style is probably too boring for many traders, but it makes a steady return without a lot of stress. After all, the Flying With The Condor™ is up 29% so far this year. That's not chicken feed, as my dad used to say (I have never fed chickens, so I don't know about these things). If you seek excitement, our services aren't for you, but if you want to turn your trading into a money-making business, check out Flying With The Condor™ and our newly released DVD series, The Ultimate Options Course.

Have a great weekend. Remind yourself this weekend what is really important. Hint: it isn't money.

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Written by Dr. Duke

Created: 20 June 2012

As expected, the Fed did disappoint traders with an announcement today to continue Operation Twist through the end of the year. Many had hoped for a new round of quantitative easing. But the disappointment wasn't too severe. SPX traded down to its 50 dma and rebounded to close at $1356, down $2 on the day. RUT lost $2 to close at $784. All in all, it was a pretty mild day of trading. So far, the resistance set in April at about $1358 appears to be holding; the nearest support level is around $1335 - $1340. I will be watching tomorrow's open to see if support is threatened after an overnight reflection on Bernanke's remarks. Tomorrow's report of unemployment claims may also influence that open.

VIX dropped off about one point to close at 17.24%, so fear is slowing easing out of this market.

My July iron condor at 610/620 and 850/860 stands at a P/L of +$1,860 with delta = -$33 and theta = +$74 (20 contracts). The call spreads are over one standard deviation OTM with 29 days to go to expiration. Other than the FOMC announcement, there was minimal economic data or news today. And outside of the unemployment claims data tomorrow, there are minimal economic data due to be reported this week. So will SPX hold support at $1335 - $1340?

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Written by Dr. Duke

Created: 19 June 2012

Today was another incredibly bullish ride in the markets. Hard to believe we were fearing the end of civilization on June 1. That is a bit of an exaggeration, but not much. It appears that traders have convinced themselves that the Fed will announce some type of quantitative easing or operation twist type of program to invest some "juice" into our economy. But I fear the market will be disappointed; I'm not sure Bernanke has much left he can do, and I'm not sure how much "punch" he has in his remaining tools. If I'm right, how severe will that disappointment be? We'll see tomorrow afternoon. I worry that it could get ugly; but, then again, I have been wrong before.

SPX closed up $13 at $1358. Interestingly, that close is right at the lows of April 9 and 23. RUT closed at $786, up $14. Trading volume jumped up with 2.8 billion shares of the S&P 500 trading today; the 50 dma is 2.85 billion. Trading on the NYSE was up 9% and trading increased 15% on NASDAQ. The VIX opened at 17.7%, dropped a bit to a low of 17.4%, but then slowly increased throughout the day to close at 18.4%. In my view, this is still a surprisingly low VIX given the situation in Europe.

Housing starts for May came in at 708k, down from last month's 744k. Building permists rose by 57k to 780k in May. So the housing numbers were a bit of a mixed bag - certainly not the impetus for such a big rally in the markets.

My July iron condor on RUT stands at a gain of $1,960 on 20 contracts with delta = -$38 and theta = +$50. Fortunately, my put spreads are down at 610/620, so they should be safe tomorrow. Watch the markets tomorrow afternoon after the FOMC announcement; whatever happens, it shouldn't be boring!

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Written by Dr. Duke

Created: 18 June 2012

I don't know about you, but I was expecting something dramatic after the Greek elections, but the market shrugged it off. SPX opened at Friday's close (first surprise), traded downward to about $1334 and then slowly strengthened to close at $1345, up $2. RUT closed up $1 at $772. Trading volume fell markedly from Friday with 2.3 billion shares of the S&P 500 trading. Trading on the NYSE was down 39% and volume was down 2% on NASDAQ. There wasn't any significant economic data reported today, so attention remains focused on Europe's economic crisis. Today was the second close above resistance on SPX at 1335-1340. Even more surprising, VIX fell almost three points to 18.3%. I don't quite understand it, but apparently, the crisis is over.

This bullish momentum may be based on a presumption of some type of assistance from the Fed and that announcement is slated for Wednesday afternoon. Could the markets pull back then if that "gift" isn't delivered? It's a dangerous market. I think the best strategy is to play it based on an assumption of a trading range for the time being. In any case, it can turn on a dime. Be careful.

The drop in volatility helped my July iron condor on RUT. It now stands at a net gain of +12% with delta = -$22 and theta = +$53. So now we watch for Bernanke before returning our attention to Europe.