Dr. Duke's Blog

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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.

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Written by Dr. Duke

Created: 10 April 2012

The S&P futures looked modestly positive or flat just before the market opened this morning, but trading turned bearish in a hurry. SPX lost $24 to close at $1359 and RUT closed down $19 at $784. Trading volume spiked up with 3.3 billion shares of the S&P 500 trading; trading volume increased 40% on the NYSE and increased 43% on NASDAQ. As always, there was no shortage of talking heads wanting to explain why the bears took charge today. Many cited the report of a trade surplus in China that resulted from weaker imports.That suggests a slowdown in China's economy; this factor, coupled with Spain's increasing bond yields, fed the fear of some traders that the global economy is slowing.

Take a look at the price chart of RUT. Today's downward price movement appeared to settle and bounce at the support level established in early March at about $785. Whether that support level will hold is difficult to predict. But it does tell me that if RUT opens below $785 in the morning, I will be very concerned about the market trading even lower before it stabilizes. The earning season kicked off this evening with Alcoa. Alcoa beat both revenues and earnings estimates and Alcoa was trading higher by 5% in after hours trading. Will that be sufficient to slow the bearish trading we saw today? We'll see.

My Apr iron condor on RUT dropped in value a bit, primarily due to the volatility spike upward today. At the close, it stood at a gain of $2,340 with delta = +$23 and theta = +$81. I hedged my May condor and it now stands at a net loss of $1,040 with delta = +$3 and theta = +$1. I hedged this position reasonably strongly to be sure this bearish truck doesn't roll over me tomorrow. You can see that in the delta neutrality of the position, but also in the small positive theta of the position. So I have given myself time to see if the market settles down or reverses without incurring outsized risk while I am waiting. Hedging yourself always beating waiting and hoping!

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Written by Dr. Duke

Created: 09 April 2012

Traders were disappointed with the jobs report Friday and stewed all weekend. The major market averages all fell today. SPX lost $16 to close at $1382 and RUT also lost $16 to close at $803. But trading volume was low. Trading in the S&P 500 came in at 2.3 billion shares, well below the 50 dma. Trading on the NYSE was down 4% and volume on NASDAQ was down 12%. The VIX popped up to 19% this morning, pulled back to 18%, but then increased into the close to 18.8% - not a good sign.

My Apr iron condor on RUT is up $2,460 with delta = +$5 and theta = +$100. My May condor stands at breakeven with delta = +$37 and theta = +$67. The bulls attempted to take back control late in the day, as they have so many times this year. But this time, the bears repelled them. Is this a changing of the guard? Many of the world markets were closed today and minimal economic data were reported, so today's weakness shouldn't be taken too seriously. But it still pays to be cautious and watch carefully tomorrow.