Dr. Duke's Blog

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Written by Dr. Duke

Created: 02 December 2009

The stock markets opened mixed this morning and couldn't seem to develop a trend. The Dow, NASDAQ and S&P 500 were all close to unchanged. The SPX closed at $1109 up less than a dollar; it appears the 2009 high for the S&P 500 is providing solid resistance at $1113. RUT was the best performing broad index with nearly a $7 rise to close at $596. The issue of the Fed Beige Book didn't stimulate much trading one way or the other. The ADP employment report this morning was worse than expected with a loss of 169k jobs in Nov, but represented an improvement over the Oct loss of 203k. The dollar was somewhat stronger today and that has led to stock market selling recently but that didn't seem have much effect today.

My Dec iron condor now stands at a P/L of +$1,210, delta = -$87, and theta = +$154. The Jan condor stands at a P/L of +$240, delta = -$39 and theta = +$94. The RUT price chart consists of a sideways choppy trend between $575 and $603 for the past 18 sessions. This is perfect for delta neutral traders.

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Written by Dr. Duke

Created: 01 December 2009

Today's markets appear to once again be driven higher by weakness in the dollar. The $64,000 question is: when does a weaker dollar become a negative? Do you know the source for that metaphor? RUT rose over $8 to close at $588 while the SPX gained almost $14 to close at $1109. If you look at the SPX intraday chart, you will see another example of $1100 as a strong support level. Today's close on SPX is just shy of its 2009 high - will it break through? Today's economic news was weakly positive; home sales for Oct were up but November's manufacturing index was disappointing. Construction spending was expected to decline, but it came in flat - is that good?

My Dec RUT condor is moving into a good place as we move closer to expiration: P/L = +$1,530, delta = -$46, and theta = +$134. The put spreads are now over two standard deviations OTM while the calls are over one standard deviation OTM.  My Jan condor stands at a surprisingly positive P/L of +$540, delta = -$21, and theta = +$134. It is unusual to have an iron condor on for only one week and be in the black, at least for now. All the talking heads appear to be looking for a correction, so that may mean we will soon break into new market highs for 2009.

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Written by Dr. Duke

Created: 30 November 2009

By late in the day, the general market consensus appeared to be that Dubai's credit problems were not likely to spread across the globe. The markets opened up a little and then traded down and sideways until the last hour of the day. That last hour lifted the indexes into positive territory. RUT moved up almost $3 to close at $580 while the SPX closed at $1096, up about $4. Trading Friday and today exemplify what I have noted in this blog several times over the past few weeks - this is a nervous market. It doesn't take much to push it off the edge. However, rather than try to predict the next move of this market, I prefer to simply keep my positions relatively delta neutral and maintain robust risk management. Keep your stops in place and adjust when your system dictates.

For you chart readers and candlestick fans, take a look at the RUT chart. Today's candle was a classic hammer that often defines the support level and signals a reversal of the down trend. The low for the day was about $568 and the close was firmly back into the range of congestion from about $575 to $605 this chart has been mired in since early November. This pattern would suggest a continuation of this sideways consolidation or the beginning of a new up trend. I am more inclined to expect a continued period of consolidation following the strong up trend of the summer and early fall. But, as noted above, it won't take much negative news to push this market into a correction.

My Dec iron condor is in good shape with a P/L of +$1,450, delta = -$4 and theta = +$124 - your Greeks don't get much better than that! The Jan condor is standing at a P/L of +$140, delta = +$4 and theta = +$78. Again this position's Greeks are near perfect, and this is especially nice since this condor is relatively new. When you establish condors in the range of 45 days or more, the first week or two are the most dangerous to your position; adverse market moves in those early days can push you out of the trade pretty easily. In about 10 days or so, we will begin to look at closing down this Dec condor position.

See you tomorrow.

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Written by Dr. Duke

Created: 27 November 2009

Credit problems in Dubai sent Asian and European markets tumbling yesterday while we were having turkey with our families. Our markets gapped down at the open today, recovered a little bit and traded sideways for the balance of a shortened trading day. The big question on everyone's mind: will the markets continue down Monday or will today's drop be considered an over reaction? Either the problems in Dubai will be considered more isolated and the market will recover or analysts will see Dubai's problems as precursors to broader global credit issues and the market may correct even further. RUT dropped almost $15 to close at $577 while the SPX lost $19 to close at $1091.

My Dec iron condor on RUT stands at +$730, delta = -$10 and theta = +$137. This market pullback has brought the index almost equidistant between the short strikes. My RUT Jan iron condor  stands at +$80, delta = +$11 and theta = +$64. Now we wait for Monday's response. Are your stop losses in place?

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Written by Dr. Duke

Created: 25 November 2009

A surprisingly positive report of new home sales for October plus a 52 week low for the dollar kept the markets in positive territory today, but just barely. The low volume of trading typical preceding a holiday continued today and will likely also characterize Friday's short trading session (trading will close at 1:00 pm ET). The RUT traded mostly sideways today and closed essentially unchanged at $592, while the SPX made a modest $5 gain to close at $1111, just shy of its record $1113 for 2009.

My Dec iron condor now stands at a P/L of +$630, delta = -$84 and theta = +$122. The put spreads are now over two standard deviations OTM and the calls are right at one standard deviation OTM. The Jan iron condor on RUT stands at a P/L of -$100, delta = -$32 and theta = +$81. Holiday weeks are wonderful for income generation traders.

I wish each of you a wonderful Thanksgiving with your families. We have much to be thankful for.

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Written by Dr. Duke

Created: 24 November 2009

The markets opened up weak this morning and spent most of the day slowly making up ground, ending the day essentially unchanged. The Nov Consumer Confidence Index came in greater than expected and was higher than October as well, but that didn't have much effect on the market. The release of the FOMC minutes from the last meeting did not generate much response either. In general, the market seemed to be on vacation in advance of the holiday. RUT closed down $2 at $593 while the SPX was essentially unchanged at $1106.

I initiated my Jan iron condor today by selling 20 contracts of RUT call spreads at $650/$660 for $1.07 and selling 20 contracts of RUT put spreads at $510/$520 for $1.10. Plus and minus one standard deviation was $532 to $646 and I gave myself a little more safety margin on the bottom side. We brought in a total credit of $4,340 and have $15,660 at risk. I placed my contingency stop loss order to trigger at values of RUT < $543. At the close of trading today, this position stood at a P/L of -$160, delta = -$33 and theta = +$79. My Dec RUT iron condor stands at a P/L of +$530, delta = -$79 and theta = +$123. In some ways, this type of slow choppy market is boring, but it is wonderful for income generation options traders.

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Written by Dr. Duke

Created: 23 November 2009

The S&P futures signaled a strong open early this morning, based on a weaker dollar and bullish trading in the Asian and European markets. Stocks broadly rose at the open and the strong start was further fueled by a surprisingly strong existing home sales report; Oct sales jumped 10.1% to 6.1 million sales (5.7 million were expected). But shortly after that report, the market softened and traded slowly downward the rest of the day, but strong gains were retained. RUT closed at $595, up over $10 and the SPX closed up almost $15 at $1106.

My Dec iron condor on RUT now stands at a P/L of -$110, delta = -$85 and theta = +$139. The theta/delta ratio is weakening, now below 2:1. My short $630 calls are standing at a delta of 16, well below where I would pull the trigger on an adjustment. In addition, there are many technical signs that this market is overbought, plus trading during this holiday week isn't likely to move strongly in either direction. So I am not inclined to worry about this position at this point. Market trading volume was below average today and will likely diminish as the week progresses. I will be looking to establish my January iron condor tomorrow to take advantage of the holiday.

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Written by Dr. Duke

Created: 20 November 2009

A strong dollar and a disappointing earnings report from Dell started trading this morning on a negative note that continued through mid-day. The buyers began to pull the indexes back up during the last two hours of trading, but didn't fully recover all of the losses. RUT closed almost unchanged at $585, down about a dollar, while the SPX closed down $4 at $1091. Traders continue to worry about a significant correction, but the appearance of buyers during the last couple of hours of trading both yesterday and today is encouraging. However, this market is definitely nervous - be sure your protective contingency orders are in place.

The $680/$690 calls from my Nov iron condor on RUT expired OTM today, confirming our $2,060 gain (13%) for November. My Dec RUT iron condor is in pretty good shape with a P/L of -$50, delta of -$60 and theta of +$125. January options have 55 days to expiration, so we will begin to look for the opportunity to initiate our Jan iron condor next week.

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Written by Dr. Duke

Created: 19 November 2009

Weakness in the Asian and European markets together with a stronger dollar started the market off in the hole this morning. It hit its lows around 11 am ET and slowly regained some of the losses through the balance of the trading session. Buyers appeared for the last two hours of trading and this can be interpreted as reasonably bullish. No major economic reports are scheduled for tomorrow, so it will be interesting to see if this down market has follow through or if it recovers at least some of the losses. RUT was hard hit, losing over $14 to close at $586, while the SPX broke through $1100 to close at $1094, but the SPX traded as low as $1088 intraday. RUT is right at its support level of about $585, so it could go either way tomorrow.

I closed my three Jan $630 calls for $8.40, a loss of $1,530. The volatility of this market and my adjustments back and forth are costing me much of the potential profit on this Dec iron condor; the maximum profit is now down to $2,950. The P/L for the position stands at -$550, position delta = -$63 and position theta = +$131. Our theta/delta ratio is acceptable and we have some room for the RUT to drop a little further, so we'll see what the market gives us tomorrow.

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Written by Dr. Duke

Created: 18 November 2009

The futures were flat early this morning but then a couple of key economic reports changed the mood. The consumer price index increased 0.3% (higher than expected and higher than Sept) and both new housing starts and new building permits were down for Oct, again lower than Sept. This took the futures into negative territory and the market opened lower. The dollar approached its lows of Monday, but unlike recent sessions, the stock market did not rally in response. The markets traded sideways to slightly lower all day. RUT closed down about $2 at $600 while the SPX was virtually unchanged at $1110. Both yesterday and today, the bears made runs at breaking the $1100 support level on the S&P 500, but both attempts failed and support held.

My Dec iron condor remains essentially unchanged with its P/L at -$760, delta = -$14 and theta = +$66. The delta of my short $630 calls remains around 24 so I am firmly "on hold" - I need the protection of the Jan $630 calls, so I can't sell them, but it is too early to close or roll the 630/640 calls. So we wait for the market to make its move.