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Yesterday, it appeared that everyone was either waiting to see what the Fed had to say this afternoon or were actually trimming positions to be prepared for bad news. But this morning, the traders appeared to decide the FOMC report would be positive and we had a strong market all day; even some late selling at the close was unable to trim the gains substantially. Nothing really new came out of the FOMC; interest rates will be held at their low points and they reaffirmed that they believe the recession is leveling out. RUT closed at $572 and the SPX closed at $1005.

This move up today pushed my Aug iron condor back into a weaker position with a P/L of -$1,890, delta = -$91, and theta = +$141. The Sept iron condor at 500/510 and 620/630 that I initiated yesterday stands at a delta of -$18 and theta = +$62. I will be looking to add another ten contracts to that position tomorrow. If the market moves upward, I will probably look at adding the 640/650 calls and 520/530 puts to keep the entire position more delta neutral.

Weakness in the financial stocks was triggered by CIT's announcement that it is delaying its quarterly filing. The selling spread across the board, but significant support levels were held; the SPX closed at $994 and RUT closed at $562. A common explanation among the talking heads was that the market was waiting on the FOMC announcement tomorrow afternoon. I am more inclined to see this as a needed breather from the incredible rally over the past several weeks. Trading has remained in a reasonably tight range over the past few sessions and even on down days like today, no heavy broad based selling has broken out. That tells me that the large institutional players may be taking some very selective profits, but, in general, are not selling. Of course, the wrong comments from the Feds tomorrow could change that situation very quickly.

This pullback to $562 today removed some of the pressure on my August condor; the position P/L improved to -$1,640 with delta = -$51 and theta = +$172. My short 590 calls are now more than one standard deviation OTM with nine days remaining.

I had my doubts about initiating my Sept iron condor today with the FOMC meeting in progress. So I compromised and established 10 contracts of the 620/630 calls for $1.00 and 10 contracts of the 500/510 put spreads for $1.30 for a total credit of $2,300. I intend to add 10 more contracts after the announcement tomorrow or later this week. This position has a delta = -$4 and theta = +$55 with 37 days to expiration. I positioned the short strikes just outside of one standard deviation.

It was a boring day in the markets. Less than one billion shares traded on the NYSE - the lowest number in two weeks. Given the huge run since the first week of July, the market is due for a breather, so the trading range of the last few sessions isn't too surprising. The RUT index closed essentially unchanged at $571.87. RUT has closed at about $570 in three of the last four sessions. Today's doji candlestick is further evidence of the market's indecision.

My August iron condor remains in limbo with a position P/L of -$2,380, delta = -$92 and theta = +$125. Notice how theta is beginning to accelerate in these last few days before expiration. The delta of my short $590 calls is 26 and one standard deviation on the RUT is $27. So my short calls are just over one standard deviation OTM. The 590/600 spread was established for a credit of $1.10 and the ask price to close it is $2.10. By all measures, this position is just on the edge of being closed out or moving into safer territory.

I intended to establish some Sept condors today, but I had an unusually busy schedule in the office and wasn't able to carve out sufficient time to look at the possibilities. There is a lesson here - always remember that waiting or choosing not to trade is rarely a bad decision. Rushing to judgment can lead to trouble in this business. Always take the time necessary to follow your system. Sometimes students hear an instructor say he or she always puts on the iron condor at 49 days (or whatever number), and the student takes this as an absolute dictum that rules out 50 days or 45 days. Those are guidelines; don't treat them as absolute rules that may force you into a trade without following all of your procedures.

Broad market gains characterized today's trading. The jobs report this morning wasn't stellar, but the traders appear to have concluded that the worst of the economic problems are behind us; thus all news is being given favorable interpretation, supporting the thesis that we have hit bottom and good times are ahead. But don't get complacent - that can change in a flash.

The RUT closed at $572.40, up over $14. Of course, this large upward move pushed my wounded Aug iron condor back into a precarious situation with the position P/L up to -$2,410, delta = -$86 and theta = +$96. Time remaining is down to two weeks, and normally I would be more comfortable with a $20 gap to my short strikes at this point. But this market can cover that distance in a morning! So I will be watching this position closely.

I had planned to put on my Sept iron condors today, but I had a full day and had to defer that to Monday.

The markets opened up strong this morning in spite of lackluster employment data, but the bears took control and drove the SPX back under the key $1000 support level. RUT closed at $557.62, near its support level at $551. But the market averages are still up for the week, so this is nothing more than a healthy slow down after a strong run (so far).

This pullback in RUT helped my Aug iron condor at a P/L of -$1,870, delta = -$38, and theta = +$116. Theta/delta is at a healthy 3:1 ratio, and the P/L is moderating. My short $590 calls now stand about one standard deviation OTM. A little more pullback in RUT will tempt me to add some 590/600 call spreads to try to squeeze a profit out of this crazy month; but that will increase my price risk and we only have two weeks left.

Let's talk about hindsight in trading for a moment. The pullback of the last two days has been enough to have brought my Aug iron butterfly back into the range of profitability if it were still open. Looking back at closed trades and thinking about how much money I could have made is not healthy for my trading. However, reviewing old trades with the objective of improving one's trading is very beneficial. I keep a trading journal and review my trades at the end of each month. I categorize the trades that lost money into two camps: 1) Bad Trades, and 2) Losing Trades. If I broke one or more of my trading rules, that was a Bad Trade; if I followed my rules but still lost money, that is simply a losing trade - it is part of the overhead of the trading business. I will always have losing trades; the key is to minimize those losses. Spending time each month reviewing your closed trades will make you a better trader.

The markets generally traded lower today, with the exception of the financial stocks. But significant support levels such as the SPX's $1000 level held up, so the market uptrend is still a force to be reckoned with. While bears tried to drive the averages down today, they couldn't hold the lows of the day and that shows the strength of the bullish case for this market. Given that the ADP payroll report and other economic news today was weak to outright negative, this support is significant.

The RUT closed down at $565.99. The delta of my short $590 calls in my August iron condor dipped down to 19 today, so I sold my Sept $530 call for $40.80, a $3,120 gain (my insurance). Thus, my condor position now stands at a P/L of -$2,590, delta = -$57, and theta = +$139. Time to expiration is diminishing (now 15 days), and that helps dilute the effect of additional moves against my position. But my 590/600 call spreads remain in a precarious situation. I cannot tolerate much of an upward move in RUT. At this point, my condor is a loser; I just have not confirmed the amount of that loss. My condor is unbalanced at this point with ten 590/600 call spreads and twenty 480/490 put spreads. I considered selling ten 610/620 call spreads today, but the credits were too small (ca. $0.40). I then considered additional 590/600 spreads but the resulting position delta would be around -$138 with about +$210 theta - nice bump in theta, but too much price risk. That addition would have restored the possibility of a net gain for this condor position, but I decided the risk wasn't justified. My dad was a serious poker player and he often said, "don't throw good money after bad", meaning don't add money to the pot after your probabilities of success have dropped.

Today was another volatile day in the markets, trading strongly upward for most of the day and then surrendering much of those gains in the afternoon, only to trade back up, with RUT closing at $570.74, near the day's high of $572. This is an amazing run - almost a perfect string of upward moves from July 10 to today, nearly a 20% increase in the Russell 2000 index.

By noon, I had decided my August iron butterfly had run its course. I closed the 560/620 call spreads for $17.61, the 570/610 calls for $12.84, the 470/520 puts for $1.30, and the 480/530 puts for $2.05, resulting in a net loss of $4,210 or 24% on capital at risk. The original maximum profit for this position was $6,975; I would have expected to realize about half of that as a potential gain, so this loss is a little larger than I would consider ideal (I try to hold losses to less than a normal month's profit in that strategy). As you will recall from my blog last Friday, I knew that last adjustment was a borderline move, but I was willing to take the additional risk to give the market a few more days to pull back. But this market is just not looking back.

My Aug iron condor is still in play, but I closed the 10 contracts of the 570/580 calls today. I left the Sept $530 call in play to protect the remaining 10 contracts of the 590/600 calls. At this point, the best I can expect will be a breakeven or a small loss after commissions. Current position P/L = -$2,325, delta = +$5, and theta = +$97. Our theta/delta ratio is now healthy, but our short $590 calls have a delta of 27, so we are not out of the woods yet. The important point to note is how I have hedged my upside risk with the Sept calls, rolled spreads upward, and closed spreads as the market has continued to rally. The net result is that our worst case scenario would involve a loss of about half of a normal month's profit. Risk management is essential to successfully trading the iron condor (and any other option strategy for that matter).

The SPX closed at $1002.63 today, the first time above $1000 since last November. RUT is also in new territory at $565.78, although it broke its November highs Friday. Favorable manufacturing index and construction spending reports this morning resulted in steadily bullish trading throughout the day, pushing all of the indexes to new highs on increased volume.

These persistent new highs are taking their toll on my August positions. My Aug iron butterfly, that I just adjusted on Friday, is already on the ropes, with P/L = -$3,420, delta = -$131, and theta = +$164. My Aug iron condor now stands at P/L = -$1,340, delta = -$104, and theta = +$116. Both positions are near my minimum of 1:1 for the theta/delta ratio. Unless we get some sideways or downward market moves soon, I will be closing both of these positions. But I will most likely be closing both positions for less than a normal month's gains - that is one of my iron clad rules. In fact, I nearly closed these positions today, but the relatively large theta values are keeping me in the trade for another day.

The GDP report this morning had a mixed message that led to quiet, choppy trading. Second quarter GDP dropped by 1%, better than the expected -1.5%, but personal consumption expenditures dropped by 1.2%, worse than the expected -0.5%. This left the major indexes largely unchanged on lower trading volume. RUT closed at $556.71, down $1.09. Today's RUT candlestick was an even more classic shooting star than yesterday. The psychological profile behind the shooting star candlestick pattern is this: the market opens and the bulls push the market to new highs, but they can't hold those highs; the bears pull it back down to a closing price near the opening price. Often, this suggests a weakening of the bullish side of the tug of war. We'll see.

My iron butterfly position is in trouble. I decided to give it one more gasp for a profit by closing the 550/600 call spreads and rolling them to 570/620 and closing the 460/510 put spreads and rolling them up to 480/530. Please note that every time I roll these spreads up to follow this trend, I am putting more capital at risk and decreasing the potential gain if the trade eventually works out. Thus, I wouldn't recommend this tactic for everyone, so don't follow it blindly. My current iron butterfly position consists of two contracts each of the 570/620 calls, 560/610 calls, 480/530 puts, and 470/520 puts, with a P/L of -$2,612, delta = -$73, and theta = +$167. This adjustment restored a more reasonable theta/delta ratio and kept me in the game, but the maximum potential profit is diminishing.

My August iron condor is handling this bullish trend well so far with a P/L of -$895, delta = -57 and theta = +$148. We are near an area of the risk/reward curve where the downward steepness begins to be painful as our losses increase. The consolidation of the RUT price chart over the past few sessions has helped this condor position a lot as the time to expiration has ticked away. We started this iron condor with a potential profit of $4,000; under no circumstances do I want to allow this position to lose more than that potential profit. So I will be watching the P/L and the theta/delta ratio as we progress into next week.

Wow! I just cannot believe the markets are this strong. Initial jobless claims reported a higher number than expected this morning, but the market still rallied. All of the major indexes were up about 1% or more. RUT closed at $557.80. Looking at the RUT price chart, you will note that the previous three sessions were stalled right at the high price set back in early November, but today's action broke through that resistance level. If you follow candlestick charts, you will recognize today's "shooting star", often a sign of a reversal of a bullish trend. On the other side of the coin, today's highs were set with higher trading volume - a bullish sign. The bottom line for me is that I don't see the economic basis for this rally, but we have to trade based on what the market gives us, not what we think it should be doing.

My Aug iron butterfly is nearly exhausted; the P/L is now -$2,812, delta = -$126 and theta = +$132. A one to one ratio of theta/delta is weak. I nearly closed this trade today, but the pullback in the last hour or two of trading persuaded me to give it another day. You might disagree with that decision and I admit it is borderline; I may be allowing my prejudice about this rally to influence me.

My Aug iron condor is in better shape with a P/L of -$655, delta = -$53 and theta = +$107. A two to one ratio of theta/delta is good, albeit minimally good. Our Sept $530 call is up by more than three thousand dollars at this point - that call is keeping this trade alive.