Dr. Duke's Blog

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Written by Dr. Duke

Created: 10 May 2011

The markets opened up strongly this morning, but even more impressively, the bulls added a few points in the last couple of hours of trading. The SPX is nearing its recent 52 week high at $1365; SPX closed today at $1357, up $11. RUT has also retaken its role as market leader, tacking on $13 to close at $856. Trading volume was up from yesterday's abysmal showing, but still remains at historic lows with 2.6 billion shares of the S&P 500 trading, well below the 50 dma. Trading volume was up 8% on the NYSE and up 23% on NASDAQ. The VIX pulled back under 16%.

Economic data was almost non-existent but wholesale inventories reported up 1.1% in March. That is a bullish sign for the economic recovery; it suggests businesses are forecasting increased demand. If we saw inventories building during a booming economy, that would suggest a slowing of demand.

My May RUT iron condor stands at a P/L of +$1,142 with position delta = +$2 and theta = +$48. The June condor is feeling the pressure of this most recent bullish run upward with a P/L of -$784 and delta = -$103 and theta = +$102. The delta of the 900 call is at 17 and the theta/delta ratio being approximately one to one shows the strain on the position. I will have to adjust soon. So my delta neutral positions are under stress and my bullish directional trades are happy as clams (I don't personally know any clams, but...).

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Written by Dr. Duke

Created: 09 May 2011

The stock markets opened flat this morning and traded sideways until around noon when the dollar declined and stocks rose. The markets held those gains into the close. An absence of economic data appeared to cause many to stay on the sidelines. Trading volume was way off from Friday with only 2.2 billion shares of the S&P 500 changing hands. That was the lowest trading volume for the S&P 500 recorded in 2011. Trading volume was down 25% on the NYSE and down 19% on NASDAQ. The SPX closed up $6 at $1346 while RUT closed at $843, up $9. Economic data will continue to be in short supply until Thursday when unemployment claims and the PPI will be reported. That will be followed by the CPI and the University of Michigan Consumer Sentiment survey results on Friday.

I closed the remaining 890/900 call spreads in my May condor on RUT today. This position now consists of ten contracts of the 920/930 calls and twenty contracts of the 720/730 put spreads. At this point, it appears likely I will allow the remaining spreads to expire worthless. The current position is up about $1,100 with delta = -$1 and theta = +$21. If the remaining spreads expire worthless, the May condor will gain $1,272 or 7% on capital at risk. The Jun iron condor on RUT stands at a P/L of +$316 with delta = -$61 and theta = +$90. So we continue to trade what the market gives us while others attempt to predict the future...

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Written by Dr. Duke

Created: 06 May 2011

All of the major stock indexes were up today, but trading volume declined from yesterday across the board. The jobs reports surprised analysts with 244k new non-farm jobs; analysts were expecting 185k. This drove the markets strongly upward, but the bulls couldn't hold the highs. SPX traded as high as $1354 before pulling back to close at $1340, preserving a gain of $5. RUT closed up $4 at $833. 3.2 billion shares of the S&P 500 stocks traded today, down from yesterday and below the 50 dma. Trading on the NYSE was down 8% and volume was down 9% on NASDAQ.

It is interesting to look at the SPX chart in candlestick format. Today's candlestick has a large upper shadow, underscoring that the bulls were unable to hold the highs; however the past three days have large lower shadows, showing that the bears could not hold the lows. So the market is certainly weak, but neither the bulls nor the bears have been able to make a decisive case for their viewpoints. Today's low trading volume reinforces this conclusion.

My May iron condor on RUT at 720/730 and 890/900 and 920/930 stands at a P/L of +$1,092 with delta = -$3 and theta = +$56. The June iron condor on RUT at 690/700 and 900/910 stands at a P/L of +$216 with a delta = -$56 and theta = +$91. Next Friday I will decide which of the May spreads I will close using my two standard deviation rule. If the market clearly resumes its up trend, then I will roll my June put spreads upward.

Enjoy your weekend.

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Written by Dr. Duke

Created: 04 May 2011

Disappointing economic data sent the markets lower this morning. The major indexes recovered some of the losses before closing down for the day. SPX traded as low as $1341 before closing at $1347, down $9 on the day. RUT was once again weaker than the broad large cap indexes, losing $11 to close at $833. Trading volume was flat to down with 3.4 billion shares of the S&P 500 trading, down from yesterday and just above the 50 dma at 3.3B shares. Trading was up 5% on the NYSE and unchanged on NASDAQ.

The news of Portugal's bail-out took European markets down this morning and that might have set the tone for the opening of the US markets. But the economic data here didn't help. ADP reported 179 thousand new private payroll jobs, but analysts were expecting 200k. And the ISM services index dropped to 52.8 for April from March's 57.3.

Today's move downward took my May iron condor on RUT back to a delta neutral posture with a P/L of +$1,092 and delta = -$5 with theta = +$51. My RUT condor for June stands at a P/L of +$536 with delta = -$48 and theta = +$65. The market's recent weakness doesn't appear to have an obvious cause and effect. Perhaps the long awaited reaction to the end of the Fed's quantitative easing program is beginning?

It is fascinating to compare my directional trading portfolios to my delta neutral trading portfolios. When the market is trending strongly, the directional portfolio does well and the delta neutral trades struggle to minimize their losses. And now my directional trades are struggling and my delta neutral trades are flourishing. It makes a good case for diversifying your strategies.

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Written by Dr. Duke

Created: 03 May 2011

The markets largely traded sideways and slightly downward this morning, but selling pressure took the markets steadily lower most of the afternoon. But the bulls came in and picked up some bargains around 3 pm ET, helping the markets close off of their lows for the day. SPX closed at $1357, down $5, after hitting a low at $1350 earlier in the afternoon. RUT dropped even harder for the second day, closing down $11 at $844. RUT led the markets all of last year, seemed to falter in early 2011, but then again led in this latest bull run upward, but now the RUT is leading in the decline.

There wasn't much economic news today and no news that I know of to account for the markets selling off. Factory orders were up 3% for March, a big improvement over the 0.7% increase in February; but that news didn't seem to affect the markets. Trading volume was up across the board with 3.5 billion shares of the S&P 500 trading; volume was also up 11% on the NYSE and up 7% on NASDAQ.

This pull back by RUT was welcome relief for my iron condor positions. The May condor now stands at a P/L of +$852 with delta= -$25 and theta = +$65. The June condor stands at a P/L of -$1044 with delta = -$77 and theta = +$92. I removed the hedges from this position today; those adjustments cost me $184 but have kept me in the position with an opportunity to salvage a gain down the road. However, as you can see from the theta/delta ratio, this position isn't out of the woods yet.

The fact that SPX hit $1350 and bounced today is somewhat encouraging. It suggests that significant bullish support remains for this market. But we'll see. The only thing certain about this market is its uncertainty.

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Written by Dr. Duke

Created: 02 May 2011

Trading was choppy at the open this morning and weakened as the day progressed. SPX closed down $9 at $1361 while RUT gave up $11 to close at $855. The VIX increased a bit to 15.99%, still pretty low for the past several years. The ISM manufacturing index came out at 60.4 for April; this was a drop from last month, but beat expectations. Construction spending was up 1.4% for March while analysts expected no change. Trading volume in the S&P 500 dropped to 3.0 billion shares, well below Friday's volume and below the 50 dma. Trading on the NYSE increased 4% and dropped 15% on NASDAQ. Meanwhile oil remains high at over $113/bbl and gold keeps setting new highs. It seems inconsistent to me that the "flight to safety" continues in gold at the same time that the stock market is soaring. Perhaps this simply shows the effects of the Fed's QE II. If so, what happens when that program ends?

The pull back by RUT took a lot of the pressure off my May and June iron condor positions. My May condor now stands at a P/L of +$212, with a position delta = -$63 and theta = +$99. The June condor is still hedged with July calls and stands at a P/L of -$1,744 with delta = -$40 and theta = +$58. We'll see what tomorrow brings.

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Written by Dr. Duke

Created: 29 April 2011

The markets tacked on a few more points today on average to below average volume. SPX closed at $1364, up $3 and RUT hit a new all-time high at $865, a gain of $4. RUT has now erased all of the damage done in 2008-2009. Trading in the S&P 500 hit the 50 dma at 3.4 billion shares while trading on the NYSE was down 7%. But trading on the NASDAQ was up 23%, perhaps due to all of the activity in RIMM and MSFT. This market is being driven by the Fed's QE II, which is driving the dollar lower and the markets higher. Commodities continue to trade upward without a pause. Oil hit $114/bbl intraday and gold traded as high as $1570 intraday and closed at $1556. More fuel for this bull market has been delivered by the earnings reports thus far. Over 300 of the S&P 500 companies have reported and over 80% have met or beat Wall Street's estimates.

My condors are being pressured by this relentless move upward; both positions are underwater and the theta/delta ratios are about one-to-one on both the May and June positions. The June condor is hedged with July calls, but I will soon have to roll the call spreads upward to remain in this position. We'll see if next week gives us a breather.

Here in Chicago, we are finally getting some warm weather so that means yard work. Enjoy your weekend.

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Written by Dr. Duke

Created: 28 April 2011

Initial unemployment claims startled traders this morning by going back up over 400k to 429k, up 25k from last week. But continuing unemployment claims dropped by 68k, although many of those are simply running out of benefits and dropping off the rolls rather than becoming employed. First quarter GDP came in at 1.8% which beat expectations of 1.7%. The net result was sideways trading throughout most of the day, but the bulls took charge about 2 pm this afternoon and tacked on some more gains. SPX gained $5 to close at $1360, while RUT set another high at $862, up $3. Trading volume was down on the S&P 500 with 3.1 billion shares changing hands. Trading only increased 1% on the NYSE and dropped 5% on NASDAQ.

My May iron condor stands at a P/L of -$828 with delta = -$74 and theta = +$154 while the June condor stands at a P/L of -$1,984 with delta = -$38 and delta = +$56. Both condors are being pressured on the top side. Current market levels are back to the spring of 2008. Can this bull market take us back to the highs of 2007?

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Written by Dr. Duke

Created: 27 April 2011

The markets were rather subdued most of the day, hovering around the open by a few dollars. But after the FOMC announcement, and then especially after Bernanke's news conference, the bulls began to run. SPX closed up $8 at $1356 while RUT ran $5 to close at $858, and that sets a 2011 high for a close on RUT. Trading volume was slightly down from yesterday with 3.2 billion shares of the S&P 500 stocks trading. That is just below the 50 dma at 3.3 billion shares. Trading on the NYSE was up 5% and NASDAQ trading volume was essentially unchanged from yesterday. The FOMC announcement didn't really have any significant new revelations, and I suppose that was what triggered the rally. Bernanke is holding firm that rates will remain low for "an extended period" and is willing to risk moderate inflation to stimulate the economic recovery. So the fuel continues to flow for a bullish stock market. 

Gold hit new highs at $1530 per ounce and silver hit a 30 year high at $48 per ounce. Durable orders for March increased 2.5%. This increase in durable goods orders would normally have been seen as bullish news, but it was swamped by all of the attention given to the FOMC's announcement and the first of a series of news conferences by Bernanke.

My May iron condor on RUT moved into the red with a P/L of -$438 and a position delta = -$84 and theta = +$97. I still have 10 contracts of the 890/900 call spreads that are pressuring this position. The delta of the 890 calls hit 18 today. The June condor presented an excellent illustration of the power of a hedging adjustment. Yesterday, I bought July $900 calls to hedge the upside and the net P/L of the position was -$1,814. After another $5 increase in RUT today, that position's P/L is virtually unchanged at -$1,834 with position delta = -$40 and theta = +$45.  So the hedge is doing its job for now, but more serious adjustments will be required if RUT continues its upward trek. After the news conference with Bernanke was over, it appeared that all of the talking heads and analysts have decided we have resumed the bull market advance. We'll see. Often the market surprises us when we all run to one side of the ship. But in the meantime, we delta neutral traders will simply trade what the market gives us.

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Written by Dr. Duke

Created: 26 April 2011

Yesterday's slow day appeared logical in light of the FOMC meeting starting today and issuing a statement tomorrow. But, just to shatter our predictions, the market took off to the upside today on strong volume. SPX traded up to its high at $1350 by noon and then traded largely sideways the balance of the day, closing at $1347, up $12. This is the first time SPX has been able to break through the high set in late February. RUT traded stronger than SPX in early April and although it closed up $9 at $853 today, it didn't reach the April highs. Trading volume on the S&P 500 was up sharply from yesterday's unusual lows with 3.3 billion shares, right at the 50 dma. Trading on the NYSE was up 29% and trading volume was up 40% on NASDAQ.

The Conference Board's consumer confidence index for April jumped to 65.4 from last month's 63.8. This report surprised traders and may have provided some of the bullish momentum today. The Case-Schiller housing price index reported a 3.3% decline.

My May iron condor on RUT stands at a P/L of +$42 with delta = -$56 and theta = +$86. The delta of the 890 calls is up to 13, so this position is reasonably solid at this point. But my June condor is feeling the pressure. I added some Jul $900 calls today to hedge the upside and the P/L = -$1,814 with delta = -$42 and theta = +$55. The delta of the Jun $900 calls = 21. So now we watch to see if the FOMC surprises the market in some way tomorrow or somehow fuels this bull market even further.