Dr. Duke's Blog

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Written by Dr. Duke

Created: 04 March 2010

The markets traded in a narrow range today, held down by a stronger dollar and anticipation of tomorrow's unemployment numbers. Pending home sales dropped 7.6% in January, which surprised analysts who expected a 1% increase. Initial jobless claims dropped 29k from last week and continuing jobless claims also dropped 134k. This news appeared to push the market lower in the first hour of trading, but then it traded largely sideways until the final half hour. Then the markets moved up significantly to close with modest gains for the day; did someone leak the unemployment numbers? RUT closed at $652, up a little over $3 and the SPX closed above the significant $1120 level at $1123. Tomorrow will tell us whether these indexes have truly broken out from resistance. Trading volume was weak; it was flat on the NYSE, lower on NASDAQ and below average for the S&P 500. It appears the large players are still waiting for a signal to move.

Since my trading advisory service, Flying With The Condor™, began a few weeks ago, I will not be reporting daily on my condor trading. I will periodically update you on my positions and my track record. In the meantime, check out the Flying With The Condor™ service. It comes with a money back guarantee.

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Written by Dr. Duke

Created: 03 March 2010

The Challenger jobs report cited 42k jobs lost in February before the market opened this morning. This was viewed positively since it was the lowest monthly job loss number since 2006. As the market opened, the ADP payroll data report cited a loss of 20k jobs in February, the smallest decline reported by ADP in a year. The markets traded upward on the basis of this good (?) news until about 11:30 am ET. Then the markets slid the rest of the day to close essentially unchanged. RUT closed up about $1 at $649 while the SPX traded as high as $1125 before declining to close at $1119, a gain of less than a dollar. The FOMC Beige Book was released this afternoon and reported modest economic improvement across the country. Trading volume was up today on the NYSE and the NASDAQ but remains below average on the S&P 500. Notice how the SPX traded higher both yesterday and today but could not hold those intraday highs. That behavior was also true of the trading in RUT today. This makes me wonder if this bullish run that began in early February is running out of gas.

In the meantime, my wounded March condor limps along with a net loss of $3,460, delta = -$138 and theta = +$206. I have just about run out of options to salvage this trade any further, although we will achieve our goal of limiting any one month's loss to less than a month's potential gain. This position's loss will be steadily decreased as the time decay accelerates these last few days; but our best case scenario is for a small loss. The Apr condor is faring somewhat better but is in a weakened position after this recent run up in RUT. The P/L is -$955 with delta = -$138 and theta = +$206. The big difference with the Apr position is that we have a lot of time and possible adjustments remaining to salvage a gain from this trade.

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Written by Dr. Duke

Created: 02 March 2010

Investor's Business Daily changed its market reading to "market in confirmed uptrend" after yesterday's strong performance. Stocks traded up across the board today, although trading volume remains below average. Small cap stocks had led the recent gains, outpacing the large stocks typical of the S&P 500. RUT traded up almost $6 to close at $648 today, while the SPX rose a little less than $3 to close at $1118. The SPX appears to be struggling to break through $1120; it was above $1120 a couple of times today, but was pulled back. By contrast, the Russell 2000 index is only one dollar short of its 52 week high. The S&P 500 would have to rise over $30 to reach its 52 week high.

This March expiration month has been a very challenging month for delta neutral traders. This is one of those months when good traders are happy to break even or at least minimize their losses. I opened my Mar condor on January 21 with the RUT at $628; it proceeded to drop over $42 to $586 and has now roared back upward by $62 to its close today at $648. I rolled my Mar 660/670 calls up to 670/680. The trade now stands at a P/L of -$3,140, delta = -$28 and theta = +$153. This last adjustment moved our Greeks into a good position, but even if the market trades within the channel formed by this trade for the next couple of weeks, this trade will just barely break even.

The Apr condor stands at a P/L of -$805, delta = -$79 and theta = +$79 after adding a May call to adjust the position earlier today.

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Written by Dr. Duke

Created: 01 March 2010

The markets chopped about a bit this morning after disappointing news from the ISM manufacturing index; the index declined for Feb and was lower than expected. But it didn't take long for the market to get over that disappointment and then it traded pretty steadily upward the balance of the session. Trading volume was mixed but generally lower: down about 8% on NYSE, up about 11% on NASDAQ, but it remained below the 50 day moving average on the S&P 500. RUT traded up over $14 to close at $643. The SPX closed at $1116, up a little over $11. The SPX close is right at resistance, whereas RUT clearly broke through resistance and is closing on its 52 week high at $649. Another remarkable aspect of today's strong market - this all happened as the dollar was trading higher.

Today's strength necessitated some adjustments to my Mar iron condors. I bought two Apr $660 calls for $8.50 to protect my call spreads. I also closed my 570/580 put spreads for $0.35 (a gain of $900) and rolled up to 590/600 for $0.60. So the Mar position now stands at a net loss of $2,080 and position delta = -$71 and theta = +$178. This trade is struggling to break even at this point; absent a pull back, we may be simply holding our losses to a minimum.

The April iron condor stands at a P/L of -$60, delta = -$93 and theta = +$89. The delta of the short $680 calls is up to 17, nearing the area for adjustment.

Now the big question: is this market going to push to new highs as RUT appears to be doing or drop back within the trading range as it appears the S&P 500 is doing?

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Written by Dr. Duke

Created: 26 February 2010

The markets are shrugging off good news and are largely unaffected by bad news. GDP results for the fourth quarter were revised upward to an annual rate of 5.9%, but the markets apparently do not believe this is sustainable so that had little effect. Existing home sales were down 7% in January and the consumer sentiment survey from the University of Michigan was unchanged - so consumers are also trading sideways just like this market. Trading volume was down on all markets. The S&P 500 closed at $1104, a gain of less than $2 (still in its trading range) while the RUT was close to unchanged, closing at $629, down less than $2 (also still within its trading range).

The time decay on my March condors is building and slowly moving that position toward profitability. The P/L is up to -$840 (was at -$1540 yesterday) with delta = -$70 and theta = +$162. The newly coined April condor is already in the black with +$600, delta = -$37 and theta = +$75. Both positions have healthy theta/delta ratios. The market's indecision is good for delta neutral positions.

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Written by Dr. Duke

Created: 25 February 2010

The markets opened weak this morning on the back of a stronger dollar and some poor news on the unemployment front. New unemployment claims rose  from 474k to 496k with the market expecting 460k. Ongoing unemployment claims rose to 4.62 million from 4.61 million with the market expecting a decline to 4.57 million. This sent all of the major indexes significantly lower. But the dollar weakened as the day wore on and the market recovered most of its losses. After plunging as low as $621, RUT closed unchanged at $630, right in the middle of its 625-635 trading range. Similarly, SPX traded down to $1086 before recovering to close at $1103, a loss of less than $2. SPX has strong support at $1100 and resistance at $1116. What strikes me about this market is its lack of direction; it seems trapped in this trading range without a strong bullish case, but also without a strong case for lower prices. The flurry of earnings reports during the past few weeks are similar when you think about it: companies generally have slashed costs to retain earnings but their revenues have actually decreased and their forecasts for growth have not been overly optimistic. Thus, one gets a picture that isn't very bullish when looking forward, but it isn't full of gloom and doom either. So a sideways market isn't too surprising.

My Mar condor stands at -$1,540 and delta = -$67 and theta = +$178 and the April condor stands near breakeven with delta = -$43 and theta = +$83.

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Written by Dr. Duke

Created: 24 February 2010

The markets traded down this morning after reading Bernanke's prepared remarks for Congress, but then rebounded and held some of the gains into the close. SPX closed up over $10 at $1105 while the RUT closed at $630, up about $5. Both indexes are still trading within the narrow ranges of support and resistance we have discussed earlier, especially the well defined range for the S&P 500 from $1100 to $1116.

I decided to establish my April iron condor on RUT today. I sold twenty contracts of the 680/690 calls for $1.10 and twenty contracts of the 550/560 puts for $0.85. At the close, this position stands at a P/L of -$80, delta = -$43 and theta = +$78. Both short options are at a delta of 13. Our Mar RUT condor now stands at -$1,720, delta = -$68, and theta = +$161. The 660/670 calls are about one standard deviation OTM and the 570/580 puts are about one and a half standard deviations OTM. The weather is perfect for condors, just muddling along.

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Written by Dr. Duke

Created: 23 February 2010

The February Consumer Confidence numbers came out this morning and were the lowest since April 2009. That, coupled with a strong dollar, sent the market down and it never recovered. The S&P 500 closed at $1095, down over $13. The SPX price chart shows a channel from $1085 to $1115 that SPX traded within over several weeks in November and December last year. So today's move down stayed well within that range. Coupled with lower trading volume, today's downward move wasn't significant. RUT also lost ground today, falling about $7 to close at $625, right at the support level formed by the double top last September and October.

Today's downward move was sufficient for me to remove the long call hedge on the March iron condor. I sold the two April $640 calls for $12.30, a $660 gain. That brought the position P/L to -$1,980 with a position delta of -$56 and a position theta of +$160. Our adjustments on both sides this month have removed much of our profit potential; the most we can hope for is about $1,800. Our Greeks are looking pretty good; if RUT trades within a relatively narrow sideways range, we may still squeak out a profit. The objective in this business is to minimize losses, not necessarily eliminate them.

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Written by Dr. Duke

Created: 22 February 2010

After a day of choppy back and forth trading, the markets closed essentially unchanged on lower trading volume. The SPX closed at $1108 with a decline of less than a dollar, while the RUT closed at $632, up less than a dollar. The SPX appears to be caught in the same consolidation range of $1100 to $1116 as it was from mid-November to mid-December last year. Bernanke's testimony later this week could jolt the market out of this trading range, but I would be surprised if he says anything new.

My March iron condor on RUT stands at a P/L of -$1,540 with a position delta of -$10, and theta = +$115. We will initiate our April positions later this week. I considered selling the April hedges today, but decided we need that protection until we get a least some minimal pullback in RUT. So far, it seems to be stubbornly moving higher, just very slowly.

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Written by Dr. Duke

Created: 19 February 2010

The Fed's move to increase the discount rate appeared to have the market headed lower as the market opened today, but the market recovered quickly, erased the early losses and closed with modest gains. A surprise decline in the consumer price index this morning probably helped the market's mood. RUT closed up over $2 at $632 while the SPX traded up to $1109. In my opinion, we have not definitively broken through resistance as yet. But, on the other hand, today marked the eighth successive up day for RUT - rather remarkable.

My Mar condor is in pretty good shape after yesterday's restructuring. The P/L stands at -$1,800 with a position delta of +$1 and theta = +$103 - now that's a theta/delta ratio for you! We still have our two April $640 calls in place; they now stand at a gain of $1400. Those calls are responsible for this trade being so perfectly delta neutral.