Dr. Duke's Blog

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Written by Dr. Duke

Created: 26 April 2012

The markets opened up hesitantly this morning, but in positive territory after yesterday's strong rally. However, as the day wore on, the markets marched steadily higher. SPX closed at $1400, up $9 while RUT tacked on $6 to close at $818. But volume was down a bit with 2.7 billion shares of the S&P 500 trading. Trading volume was down 4% on the NYSE and up 3% on NASDAQ. SPX firmly broke through resistance at $1390 today and returned to the earlier trading channel of $1390 to $1420.  In similar fashion, RUT is now back in the $815 - $847 channel of late March.The low trading volume makes me a little skeptical that this rally can go on to break through $1420, but we'll see. One thing is for sure: with all of the negative news today about increasing unemployment claims, the bulls still took it higher - they have a firm hold on this market.

Volatility dropped a little more today, with the VIX closing at 16.2%. Unemployment claims came in at 388k, flat from last week, but trending upward over the past several weeks. Continuing unemployment claims stand at 3.3 million, up three thousand. Pending home sales were the positive surprise with a 4.1% increase in March.

My May iron condor on RUT at 720/730 and 910/920 stands at a gain of $1,260 with delta = +$14 and theta = +$43 with three weeks to go. It is very well positioned with each spread about two standard deviations OTM. Keep an eye on $1420 on SPX. If we break through that resistance level, 2012 may well turn out to be a very good year for stocks.

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Written by Dr. Duke

Created: 25 April 2012

The markets appeared to have all of their uncertainties erased by Apple's stellar earnings announcement - I know that doesn't make sense, but it is hard to explain this market's ups and downs. One day it appears bullish; the next day it appears the world is ending. Today was strongly bullish - what will tomorrow bring? SPX gained $19 to close at $1391 and RUT closed at $812, up $14. SPX is sitting right at resistance; tomorrow's opening will be interesting to watch. Cautiously bullish is still the best description for this market.

Trading volume popped up a bit today with 2.9 billion shares of the S&P 500 stocks trading; trading volume was up 7% on the NYSE and was up 2% on NASDAQ. The VIX dropped significantly today, closing at 16.8%. That's a good sign for the bulls.

My May iron condor on RUT stands at a P/L of +$620 with delta = +$25 and theta = +$87. With 22 days left to expiration, we are in pretty good shape.

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Written by Dr. Duke

Created: 24 April 2012

It seemed like everyone was focused on Apple and their upcoming earnings announcement all day today. AAPL lost another $11 today, which fed the rumors that the announcement had some bad news. But AAPL blew away the estimates once again. Congratulations to those of you who played AAPL bullishly; shame on you skeptics (we long time Mac users are enjoying this).

SPX traded up a bit today, but it was pretty choppy. SPX closed at $1372, up $5. RUT gained $6 to close at $798. Trading volume was flat on the S&P 500 stocks at 2.8 billion shares. Trading declined on the NYSE by 4% and dropped 5% on NASDAQ.

The VIX lost about one percentage point, closing at 18.1%, indicating some calming in the markets. I think traders will remain calm and cautiously bullish as long as $1360 holds on SPX.

The Case Schiller Housing Index dropped again in February, down 3.5%. Consumer confidence remained flat at 69.2 and new home sales dropped 25k in March to 328k.

My iron condor on RUT for May stands at a P/L of +$160 with position delta = +$45 and position theta = +$78.

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Written by Dr. Duke

Created: 23 April 2012

Concerns over the European debt crisis have returned to the financial headlines and are once again worrying traders. SPX lost $12 to close at $1367 and RUT closed at $792, down $12. But trading volume dropped off to 2.8 billion shares of the S&P 500. Trading on the NYSE dropped 20% and volume dropped 7% on NASDAQ. SPX is holding the support line around $1360 that was established April 10-11. SPX dropped as low as $1359 this morning, but slowly recovered from there all day. RUT behaved similarly, dropping to $785 this morning (the low of April 10 and March 6) before rebounding a bit to close at $792. The absence of any economic data didn't help push the market either way.

VIX popped up over 20% this morning, but calmed as the day wore on to close at 19%. The fact that SPX has repeatedly held the support at $1360 is reassuring. If that support level fails, watch for $1340; if $1340 breaks, then a full blown correction is underway and it could get ugly. Another reassuring data point today was the drop off in trading volume as the major indexes dropped significantly. A big down day on increasing volume would be a bad sign.

My May iron condor on RUT stands at a P/L of -$180 with position delta = +$53 and theta = +$72. The put spreads are still over one standard deviation OTM, so this position is in reasonable shape at this point with 24 days to go.

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Written by Dr. Duke

Created: 20 April 2012

Markets opened higher this morning, but started sliding down hill in the afternoon to finish the day close to unchanged. SPX gained $2 to close at $1379.  RUT fared better, gaining $5 to close at $804. Trading volume was actually down a bit from yesterday with 3.1 billion shares of the S&P 500 trading. Trading volume was up 17% on the NYSE, but was down 4% on NASDAQ. Today was a slow day for economic news, but I would have expected options expiration to boost trading volume more than it did.

RUT appears to be trading sideways from $785 to $815. Similarly, SPX can't break out above $1390 and appears to have support at $1360.

RUT settled at $812.66, so the April iron condor position at 700/710 and 910/920 will expire worthless for a 16% gain. The May position stands at a P/L of +$220 with delta = +$40 and theta = +$60. Year to date, the S&P 500 is up 9.6%, so the overall market is doing much better than last year. But Flying With The Condor™ is up 22.2% year to date.

Enjoy your weekend.

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Written by Dr. Duke

Created: 18 April 2012

The SPX  basically traded sideways today, but with considerable volatility, ranging from a low of $1383 to $1391 (SPX hit intraday lows three different times). SPX closed at $1385, down $6. RUT lost $7 to close at $803. Trading volume was basically flat with 2.6 billion shares of the S&P 500 stocks trading. Trading volume was up 3% on the NYSE and was up 4% on NASDAQ. $1390 on SPX remains the resistance level to watch; judging by the VIX at 18.6%, traders remain on guard. There wasn't much news on the economic front today which may have contributed to the market's lack of direction. The volatility of this market should give traders pause about holding any position through an earnings announcement; the latest evidence is QCOM.

My May RUT iron condor at 720/730 and 910/920 stands at a P/L of -$340 with delta = +$49 and theta = +$62. the April condor continues to cruise toward expiring worthless for the maximum gains. Next in the earnings announcement cross hairs is CMG. Can it maintain its glorious ascent?

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Written by Dr. Duke

Created: 17 April 2012

The markets opened higher this morning and just marched even higher as the day progressed. Most of the major market averages closed near their highs for the day. SPX ran up $21 to close at $1391. RUT closed at $811 for a gain of $13. Trading volume fell off a bit with 2.5 billion shares of the S&P 500 trading. Trading volume fell 4% on the NYSE and dropped 3% on NASDAQ.

SPX closed above resistance at $1390, but just barely. We will have to see it hold that high tomorrow. The next level to watch is $1420, the recent high for the year. If we break through $1420, then this bull market is back on with strength. More likely would be a consolidating trading range between $1390 and $1420.

Housing starts dropped by 40k in March to 654k, but building permits increased 32k to 747k. Industrial production was flat in March and capacity utilization was also flat at 78.6%. This data isn't bad, but you wouldn't think it would prompt a rally as strong as what we saw today either. This market reminds me of the volatility we observed last fall, where the market would drop dramatically one day and then swing back just as far to the up side the next day. This kind of volatility can be somewhat unnerving. As some of the commercials assert, "This isn't your father's market".

My May iron condor on RUT stands at a P/L of -$400, with a position delta = +$28 and position theta = +$87. The April condor will be allowed to expire worthless this weekend.

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Written by Dr. Duke

Created: 16 April 2012

The markets opened higher this morning, but then quickly gave up that positive tone and traded sideways most of the day. SPX closed almost unchanged at $1370, up less than a dollar on the day. RUT gained $2 to close at $798. Last Tuesday and Wednesday appeared to set $1360 as a support level; $1340 is the support level well established in February and March. Breaking $1340 could be scary. On the other side, we will have to break through $1390 to feel a bit more confident about this market. That was a pretty well established support level before SPX broke down through it on April 9. For now, one would have to describe this market as trapped in a sideways trading range. Trading volume dropped off a bit today with 2.6 billion shares of the S&P 500 trading; trading volume on the NYSE was down 3% and trading on NASDAQ was up 7%.

Today's economic data were a bit anemic with retail sales increasing 0.8% in March and the Empire manufacturing survey coming in at 6.6, down markedly from the previous reading of 20.2.

My April iron condor on RUT is cruising down to expiration this week end. This position essentially stands at its maximum gain at this point at about 16%. The 910/920 call spreads are 5.8 standard deviations OTM and the 700/710 put spreads are 4.7 standard deviations OTM. Barring the end of the world, both spreads will expire worthless this weekend. The May iron condor on RUT stands at a P/L of -$900 with delta = +$52 and theta = +$68. The volatility of this market is a little disconcerting, but non-directional trades are doing rather well in this environment, as long as you know how to adjust them when this market gyrates.

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Written by Dr. Duke

Created: 12 April 2012

The markets rallied strongly today, and one might be tempted to think all is well. SPX tacked on $19 to close at $1388. RUT ran up $12 to close at $809. SPX is now trying to break through resistance at $1390. If SPX closes above $1390, that will return SPX to the sideways trading channel and traders can breathe a sigh of relief. But a close above $1420 will be required to resume the bullish trend, so it is far too early to celebrate.VIX dropped almost 3 points today to close at 17.2%, so that is somewhat reassuring. Trading volume was down again today with 2.4 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped 3% and volume dropped 4% on NASDAQ. So we have a strong rally on weaker volume - not very bullish.

Initial unemployment claims rose to 380k this week, but continuing claims fell to 3.25 million, so we had another "not good, not bad" economic report. The PPI did not rise at all in March, so inflation continues to hide somewhere. With all of the money being printed the last couple of years, this lack of inflation is surprising.

My April iron condor on RUT stands at a gain of $2,780 with delta = +$1 and theta = -$3. The spreads are so far OTM that this position stands effectively at its maximum profit, so theta is essentially zero. The May condor stands at a P/L of -$440 with delta = +$34 and theta = +$65.

I was raised in Florida and had the experience of a hurricane tracking right through my home town. When the eye of the storm moved through town, I walked outside my house and was shocked - no rain; no wind; no sound; clear sky with stars twinkling. But one had to carefully enjoy the experience and get back inside, because the storm started up a few minutes later. In fact, some were killed because they didn't understand that phenomenon. I thought of that experience as I watched the markets today; we have now bounced back very strongly, but I think we should remain very vigilant. Don't presume talk of a correction is now passe. In my directional trading, I am generally leaning mildly bullish, but I am watching it very closely. In my non-directional trading, I just follow my rules and control the risk - in some ways a simpler approach, but many find it challenging to maintain the discipline.

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Written by Dr. Duke

Created: 11 April 2012

The markets opened in a more positive mood this morning, perhaps helped by Alcoa's strong earnings report last evening. SPX closed at $1369, up $10. RUT gained $12 to close at $797. So about half of yesterday's losses were recovered today. SPX bounced off resistance at $1375 and the 50 dma = $1373, so it is premature to declare this little romp to the downside over. To further support this note of caution, VIX closed at 20%. So this bearish trend of the past couple of weeks may not be over. Be careful.

My Apr iron condor on RUT stands at a gain of $2,580 with delta = +$12 and theta = +$56. Both spreads are 3-4 standard deviations OTM, so this position is looking pretty solid with only 8 days left to expiration. The May iron condor stands at a loss of $1,220 with delta = +$54 and theta = +$57. I removed the hedge on this position this morning.