Dr. Duke's Blog

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Written by Dr. Duke

Created: 23 January 2010

Concerns about the administration's attack on the banks led financial stocks downward yesterday. News that Bernanke's reappointment may be in trouble sent jitters through Wall Street and increased the selling pressure. In this environment, good earnings reports are leading to selling pressure; Google, AMD, Capital One, and American Express all took it on the chin after beating estimates. The VIX spiked to 27% after being at new lows around 17% just a few days ago. Investors Business Daily (IBD) changed their market posture to "Market in Correction" (if you aren't familiar with IBD either via the newspaper or their web site, you should check it out - excellent investing resource). RUT closed down $11 to $617, breaking the strong support level at $625 set by the double top back in September and October. The next support level isn't as well defined in the $590 - $600 range. SPX closed down almost $25 at $1092, just below its long time support level at $1100.


These big downward moves have not tripped my stop losses, but they have pushed both of my condors to an adjustment point. I was in Chicago all day Friday at a trading conference sponsored by Know Your Options. This is a good example of why you have contingent orders entered with your broker to protect your positions. So I will be adjusting both of these positions Monday unless the market strengthens. The Feb iron condor stands at a profit of $1,140 with a position delta of +$43, and theta = +$71. The Mar iron condor stands at a P/L of -$170, delta = +$5 and theta = +$29.

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Written by Dr. Duke

Created: 21 January 2010

Obama's next move to shore up his political position after the embarrassment in MA was to declare war on the banks; after all, it worked for Jesse James, didn't it? No one likes banks. The news sent the financial stocks and the rest of the market plunging this morning, and unlike other recent sell-offs, the bulls didn't come to the rescue late in the day. News of rising new unemployment claims fed concerns that the economic recovery is far from a certain reality. RUT broke its support level at $633 and closed at $628, just above the next support level of $625, established back in September and October (the double top). SPX traded similarly and closed down nearly $22 at $1116.

My Feb 560/570 and 690/700 iron condor now stands almost perfectly delta neutral with a P/L of +$1,800, delta = +$9 and theta = +$84. I established the beginnings of my March iron condor today with 10 contracts of the 560/570 put spreads for $1.27 and 10 contracts of the 690/700 call spreads at $1.11. Over the next several days I will look for an opportunity to add to the March position. More and more of the talking heads on CNBC are talking about a possible correction, but I have found it best to ignore them and simply follow my trading plan for how I enter my iron condor positions. My only concession to all of the talk of corrections is to scale into my March position with ten contracts today and add more later.

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Written by Dr. Duke

Created: 20 January 2010

The markets opened down today based on a stronger dollar and some reported bank lending policy changes in China. But bullish sentiment is still predominant. Pullbacks such as today's are viewed as buying opportunities. Support levels have been established over the past couple of weeks for RUT at about $633 and SPX at about $1130. RUT hit $633 at about 11 am this morning and then traded steadily higher to close at $640, down a little less than $10 for the day. The SPX dipped below its $1130 support level twice today, but buyers came in and traded the SPX higher from about 1:15 pm into the close at $1138, down about $12 for the day. However, the predominance of bullish sentiment is of concern; often that is a sign of a market top. But one of the advantages of being a options income trader is that I don't have to predict the market's turns.

My Feb iron condor stands at a P/L of +$2,020, delta = -$17, and theta = +$82. Assuming no big changes in the market tomorrow, I will be establishing at least a portion of my March iron condors tomorrow.

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Written by Dr. Duke

Created: 19 January 2010

Apparently the bulls came back from the long weekend ready to buy in earnest. Citigroup's earnings report wasn't very positive in any respect: current quarter losses and a pretty pessimistic outlook. IBM reported earnings that beat expectations with a 9% increase, but this was with only a 1% increase in revenue growth - earnings delivered via cost cutting, not a sign of healthy growth. But the bulls were not to be dissuaded; they took the S&P 500 to new 52 week highs of $1150, up over $14 today. The Russell 2000 index (RUT) also closed at a new 52 week high at $649, up over $11. The previous highs were set last Thursday at $1148 and $646, respectively. These new highs also came in the face of a stronger dollar, a marked change from recent months. All this euphoria worries me.

My Feb iron condor stands at a P/L of +$1,380 with a position delta of -$62 and theta of +$106. The delta of the $690 calls = 11, so we are not yet close to adjusting, but this market seems pretty strong. But we trade what we see, not what we expect.

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Written by Dr. Duke

Created: 16 January 2010

The complete record of the trades in the account being traded in this blog from May 29, 2009 to date is displayed below. The account began with $40,238 and today's balance is $55,427, a total gain of 38%.

Dr. Duke practices what he preaches.

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Written by Dr. Duke

Created: 15 January 2010

Intel and J P Morgan reported better than expected earnings last night, but that didn't seem to be enough for the markets today. The Consumer Price Index only increased 0.1% in December and the Consumer Sentiment Index was essentially unchanged. So the mystery is why did the profit taking take hold today? Trading volume was over 1.4 billion shares on the NYSE, but option expiration probably accounts for much of that volume. The markets opened down and traded down until just before noon, when buyers returned to the market and recovered some of the losses. RUT closed down $8 at $638 while the SPX dropped $12 to $1136. However, today's move leaves RUT and SPX firmly within the sideways channel they have been in since the last week of December, so a new correction or downward trend has not been defined by today's move.

My Feb RUT iron condor now stands at +$1,080 with a position delta of -$30 and theta = +103. Next week will be filled with earnings announcements, so it will be interesting to see if the market has any strong reactions as those play out.

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Written by Dr. Duke

Created: 14 January 2010

The markets traded down for the first hour or so this morning, and then strengthened and slowly gained throughout the afternoon to close with modest gains. The relatively low trading volume of the past few sessions continued today. Retail sales decreased in December and unemployment claims rose, but the market seemed unconcerned. RUT closed up $3 at $646 and the SPX traded up $3 to close at $1148. Many economic reports are due tomorrow; coupled with expiration Friday that may make for a volatile market.

When the market appeared weak this morning, that looked good for my January condors because I didn't want to close my 660/670 calls (I was trying salvage as much profit as I could from a difficult month). But, as the markets strengthened, I closed the 660/670 calls for $0.10 and allowed the 580/590 put spreads to go into expiration to expire worthless. Thus, my low probability RUT iron condor finished essentially at breakeven with +$370 (7%) and the high probability RUT condor finished at +$2,240 (14%).

The Feb RUT iron condor stands at a P/L of +$760, delta = -$66 and theta = +$103. This blog trading account is now up 38% since we started this experiment last May.

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Written by Dr. Duke

Created: 13 January 2010

The markets dropped at the open this morning, but before the first hour of trading was over, the indexes turned upward and steadily rose all day long.  The major indexes recovered all of yesterday's losses, and the Dow exceeded the highs for the new year set on Monday. RUT and SPX closed just shy of their Monday highs. However, the low trading volume continues, so it is hard to place too much weight on today's gains. It appears the markets are trapped in a narrow trading range without sufficient conviction to break out in either direction.

My short term RUT January iron condor stands at a P/L of +$290, delta = -$35, and theta = +$424, while the long term (51 days) RUT Jan iron condor stands at a P/L of +$2,080, delta = -$70 and theta =+$848. The call spreads remain just outside of two standard deviations OTM. Unless RUT trades downward tomorrow, I will close those spreads rather than allowing them to go into expiration. The Feb RUT iron condor closed at a P/L of +$880, delta = -$57 and theta = +$94.

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Written by Dr. Duke

Created: 12 January 2010

The markets opened down a bit this morning and then started trading steadily downward from about 11:30 ET through the rest of the day. Even a weak dollar didn't seem to help. Some analysts attributed this to Alcoa's disappointing earnings report last night, but that just seems like rationalization to me. RUT fell nearly $9 to close at $636 while the SPX closed at $1136, down almost $11. On the positive side, trading volume was below one billion shares on NYSE where the average trading volume last year was about 1.4 billion shares, so this doesn't appear to be a major institutional sell-off.

This move downward positioned all of my condors back close to delta neutral positions. The low probability Jan iron condor on RUT stands at a P/L of +$320 with delta = -$5 and theta = +$158. The high probability Jan iron condor on RUT stands at a P/L of +$2,140 with delta = -$10 and theta = +$315. The call spreads of these condors now stand at 2.5 standard deviations OTM while the put spreads are over four standard deviations OTM. If these spreads remain outside two standard deviations OTM, I will allow them to expire worthless.

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Written by Dr. Duke

Created: 11 January 2010

The futures suggested a strong market before the open this morning, but that didn't materialize as stocks largely traded sideways all day. There isn't much news to move the market this week; Alcoa announces earnings this evening, but the earnings reports likely to move the market don't begin until next week. Alcoa was one of only a few stocks to move up in today's market. RUT closed unchanged at $644 while the SPX inched up $2 to $1147.

My short term condor for January has almost moved into the black with a P/L of -$140, delta = -$73 and a theta of +$313. The Jan longer term or high probability condor stands at a P/L of +$1,220 with delta = -$145 and theta = +$626. These positions are enjoying huge theta decay at this point! Our Feb RUT iron condor stands at +$700, delta = -$42 and theta = +$85. Boring markets make for happy iron condor traders.