Dr. Duke's Blog

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Written by Dr. Duke

Created: 11 January 2012

Just as I was starting to think our markets had shaken off fear of the European sovereign debt crisis, we start the day with the major indexes down based on concerns from across the pond. But the markets fought back to close flat or with small gains by the end of the day. SPX closed unchanged at $1292 and RUT gained $2 to close at $767. Trading volume dropped off with 2.9 billion shares of the S&P 500; this is right at the 50 day moving average. Trading was down 10% on the NYSE and was down 6% on NASDAQ.

Today was a light day for economic news here in the states, but tomorrow will bring unemployment claims and retail sales for December.

AAPL finally took a breather from its upward climb today. If you are considering trading AAPL in advance of their earnings announcement, you might check out my blog today over at Traders' Library.

My Feb RUT iron condor stands at a P/L of +$1,700 with a position delta of -$41 and theta = +$80. I haven't mentioned it lately, but I am still carrying the Jan RUT 670/680 put spreads as the remnant of the latest January condor position. That trade stands at +$720 with position delta = +$7 and theta = +$21. The short puts have a delta of 2 and stand nearly three standard deviations OTM with eight days remaining. I will probably close the remaining put spreads next week and initiate the March condor.

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Written by Dr. Duke

Created: 10 January 2012

Traders appear to be forgetting about their concerns over the European sovereign debt crisis. SPX broke resistance at $1285, set in late October and closed at $1292, up $11. RUT followed suit, running up $11 to close at $765. Unlike SPX, RUT didn't break the October highs at $770. These new highs were set on increased volume with 3.2 billion shares of the S&P 500 trading today; the 50 dma is at 3.2B. Trading volume was up 16% on the NYSE and increased 2% on NASDAQ. The VIX dropped down to 20.7%, the lowest level since late July, just before the August crash.

There was no significant economic news to boost the market today. The true test of this bullish rally will be a negative news item out of Europe. Has the fear of "European contagion" been completely eliminated? Or do traders just have a short memory? Perhaps the prospect of continuing to sit on the sidelines is just proving too frustrating.

My Feb iron condor on RUT stands at a P/L of +$1,780 with position delta = -$41 and position theta = +$74 (20 contracts). The 840/850 call spreads remain outside of one standard deviation with 37 days until expiration, but the theta/delta ratio is deteriorating as the index heads higher. The question on everyone's mind is simply whether the broad indexes can continue higher or if deteriorating US and European debt issues will drag the market back into a tight trading range.

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Written by Dr. Duke

Created: 09 January 2012

Today was another low volume, largely no-movement kind of day. This becoming the norm for this market. SPX gained $3 to close at $1281 while RUT gained $4 to close at $754. SPX chopped largely sideways today; it traded as low as $1274, so support held even on an intraday basis. RUT is stalled at the long-term resistance level around $750 - $755. This is the portion of the RUT chart that corresponds to the $1270 level on SPX, so while SPX has broken that long term resistance level, RUT has been unable to close decisively above that level. Trading volume in the S&P 500 declined again today to 2.6 billion shares; the 50 dma is at 2.9 billion shares. The 50 dma has been steadily declining since roughly mid-October of last year. Trading volume on the NYSE was up 2% and increased 6% on NASDAQ. The VIX moved up about a half point to 21% today - probably not significant.

Today was a light news day, so there wasn't much to push traders one way or the other. The bulls continue to be held back by fears of the European sovereign debt issues, while the bears have to admit to strong corporate earnings. In fact, on a P/E basis, the S&P 500 is about as inexpensive as it has ever been. So the markets are trapped in this trading range. If something decisive were to be accomplished in Europe, there is a strong pent-up bull market lurking in there.

My Feb RUT iron condor 590/600 and 840/850 continues to build profits with a net P/L of +$1,920 and position delta of -$27 and theta = +$71. Although the current gains are tempting, this position has the potential for a $3,400 gain, so I will be patient and allow time decay to do its thing.

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Written by Dr. Duke

Created: 06 January 2012

The markets traded down today on a good jobs report - that is not a good sign. If the bulls can't take control when they get good economic news handed to them, what happens when we get the next bit of bad news from Europe? SPX lost $3 to close at $1278 and RUT closed at $750, down $3. So SPX manages to stay above the support level at $1270, but it appears to be just treading water. By contrast, RUT has not been able to break through the resistance at $755. Trading volume fell back today with 2.8 billion shares of the S&P 500 trading. Volume dropped 16% on the NYSE and decreased 8% on NASDAQ.

The jobs report for December came in very positively today with an increase of 200 thousand jobs and a decrease in the unemployment rate to 8.5%.

My Feb iron condor on RUT stands at a P/L of +$1,640 with delta = -$23 and theta = +$75.

Looking back at the first week of trading in 2012, one has to be impressed by the lack of direction in this market. It seems the bulls cannot make headway even with good economic data. On the other hand, the bears have not made their case stick either. My condors love this market.

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Written by Dr. Duke

Created: 04 January 2012

One might have expected a bit of a sell-off after such a strong showing yesterday, and this morning appeared to be playing out in just that way. But then the bulls reasserted themselves. SPX pulled back to $1268 this morning but then fought back to close unchanged at $1277. So SPX managed to stay above that $1270 support level. RUT couldn't hold the line, losing $5 to close at $747. Trading volume fell back from yesterday with 2.8 billion shares of the S&P 500 trading. Volume decreased 9% on the NYSE, but increased 2% on NASDAQ.

No significant economic news came out today, but tomorrow will bring the ADP private payrolls report, unemployment claims, and the ISM Services Index.

I keep wondering when the next shoe may drop in Europe - another bond rating downgrade or an actual default in Greece? That's why I can't get too excited about this bullish rally starting the new year. European sovereign debt just seems to be hanging over this market, keeping traders on edge.

My Feb iron condor on RUT at 590/600 and 840/850 stands at a P/L of +$1,350 with delta = -$24 and theta = +$76. With a strong theta/delta ratio and a modest gain tentatively in place, this position is working well thus far.

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Written by Dr. Duke

Created: 03 January 2012

The markets roared off to a very bullish start to the new year this morning. SPX tacked on $19 to close at $1277 and RUT closed up $11 at $752. SPX closed above resistance at $1270, a very bullish sign. But SPX bounced off resistance at $1285, the high set in November. Trading volume changes from Friday are not very instructive since trading volume was so low last week. But it was interesting that volume in the S&P 500 did not quite get to the 50 dma at three billion shares - not so bullish a sign.

The Dec ISM Manufacturing Index rose a bit in December to 53.9 (was 52.7 in November). Construction spending rose 1.2% in November. Several analysts cited these reports as the reason for the bullish rally, but this data doesn't seem to be that impressive. The FOMC minutes were released this afternoon, but there wasn't much news there. Some FOMC members believe additional Fed accommodation will be required to boost the economic recovery.

I closed the RUT Jan 770/780 call spreads today; assuming the 670/680 put spreads expire worthless, this will result in an $800 gain on 20 contracts or a 7% gain. But that assumes this rally continues; we'll see. The Feb iron condor on RUT stands at a P/L of +$760 with delta = -$32 and theta = +$87. So now we watch and see if this rally has legs. I have my doubts.

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Written by Dr. Duke

Created: 30 December 2011

It appears the much anticipated Santa Claus rally has not materialized; of course, there were not many traders int he market this week, so anything is possible when everyone comes back after the holiday weekend. SPX closed down $5 at $1258 and RUT closed at $741, down $4. Ironically, after such a volatile year in the markets, the S&P 500 closed today exactly where it closed on 12/31/2010. I often have someone ask me where the Dow closed today or something similar and it usually surprises them when I say, "I don't know". I have never understood the fascination with following 30 stocks to monitor the health of the markets rather than following 500 stocks.

So, after a volatile year filled with riots and wars in the Middle East, a Japanese tsunami and subsequent disaster, a downgrade of US debt, and a year long fascination with the European debt crisis, we end up exactly where we started. If your portfolios ended the year in positive territory, no matter how small the gains, you beat the market - and not many professionals can claim that this year. The average hedge fund lost over 10% in 2011.

There was virtually no economic news today and the trading volume remained low with 1.6 billion shares of the S&P 500 trading. Volume was up 2% on both the NYSE and NASDAQ.

My Jan iron condor on RUT stands at a net gain of $1,300 with delta = -$90 and theta = +$242, so the theta/delta ratio remains healthy. The long weekend of time decay will help this position significantly, so I will be looking for an opportunity to take my profits next week. The Feb condor stands at a P/L of +$680 with delta = -$18 and theta = +$79. Our theta/delta ratio is even stronger for this position, but we still have 48 days to expiration, so the long weekend won't have as significant of an effect.

I thank all of you for your support and confidence this year. I appreciate your business, but I think of many of you as much more than business partners. I wish all of you and your families a happy and prosperous new year in 2012. Enjoy your long weekend.

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Written by Dr. Duke

Created: 29 December 2011

2011 has been a year for record volatility in the markets, and price action yesterday and today appeared to underscore that record. SPX gained $13 to close at $1263 and RUT gained $10 to close at $745. With this gain, SPX almost regained everything it lost yesterday. I have not kept track, but it seems like we have seen this type of whipsaw price action many times this year. What was an unusual event has become common. Trading volume remains low this holiday week; only 1.6 billion shares of the S&P 500 stocks traded today (the 50 dma is 3.0B). Trading volume dropped on the NYSE by 3% and dropped 5% on NASDAQ. The exchanges will be closed on Monday and we may see even lower trading volume tomorrow as traders leave for the long weekend. Some analysts were quick to declare the Santa Claus rally was on again after watching the markets rally back today, but one has to wonder about the logic.

The Chicago PMI came in at 62.5 for December, which was almost flat with November at 62.6. Unemployment claims jumped up to 381k from last week's 366k while continuing unemployment claims grew by 34 thousand to 3.6 million.

My Jan RUT condor now stands at a P/L of +$900 with delta = -$103 and theta = +$210. The Feb iron condor position on RUT stands at a P/L of +$500 with delta = -$26 and theta = +$81. The theta/delta ratios of both of these positions are healthy, but the call spreads of the Jan position are under pressure again. Assuming we can muddle through tomorrow, the three day weekend should help both positions. VIX dropped one point to 22.7% and that helped these negative vega positions a bit.

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Written by Dr. Duke

Created: 28 December 2011

As expected, concerns about the European debt crisis resurfaced today. SPX lost $16 to close at $1250. RUT also lost $16 to close at $735. Significantly, SPX closed about $1 off its low of the day - a very bearish sign. Trading volume was up a bit from yesterday but still down significantly from the averages. Only 1.7 billion shares of the S&P 500 traded; trading volume on the NYSE increased 8% from yesterday's low numbers and NASDAQ increased 13%. The S&P 500 closed 2010 at $1258, so today's action took SPX back underwater for the year. It appears the Santa Claus rally didn't last very long.

No significant economic data was reported today, but unemployment claims and the Chicago PMI will be reported tomorrow.

My Jan RUT iron condor stands at a P/L of +$800 with delta = -$75 and theta = +$241. The Feb RUT condor has a net gain of $540 with delta = -$11 and theta = +$74. The Feb position is nearly delta neutral but has a long way to go before we can celebrate victory. If I can nurse the Jan condor into next week, I will be tempted to take my gains and run.

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Written by Dr. Duke

Created: 27 December 2011

The markets were open today, but very few people showed up to trade. SPX was in the black most of the day, but ended up closing at $1265 for no change on the day. RUT gained $3 to close at $751. Only 1.5 billion shares of the S&P 500 traded today; the 50 dma is 3.1B. Trading volume on the NYSE was up 2% and down 1% on NASDAQ. Interestingly, the VIX was up over one point to close at 21.9% and this rise occurred while the market was up this morning.

The Case Schiller home price index came out with a 3.4% decline in October, but consumer confidence jumped to 64.5 (up from the previous 55.2). Minimal news came out of Europe, which contributed to the market's lackluster pace.

I opened a new January iron condor on RUT last week, positioned tighter than normal at 670/680 and 770/780. This position stands at a P/L of -$400 with delta = -$111 and theta = +$175. My Feb RUT 590/600 and 840/850 condor stands at a P/L of +$160 with delta = -$34 and theta = +$79. Both positions contain 20 contracts. Absent any compelling news from Europe, we may see more slow, low volume days like today before we return to normal after New Year's.