Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 16 November 2012

Conciliatory remarks coming out of the politicians in Washington boosted markets today. Am I the only one that finds this ludicrous? Hope springs eternal. SPX closed up $7 at $1360 and RUT also rose $7 to close at $776. Trading volume was probably up due to options expiration, with 3.1 billion shares of the S&P 500 stocks. Trading volume on the NYSE was up 21% and trading was up 9% on NASDAQ. VIX dropped almost two points to close at 16.4%.

Industrial production numbers were reported for October today and they decreased 0.4%. Capacity utilization also dropped to 77.8% from September's 78.2%.

SPX settled at $1353.46 for November and RUT settled at $768.02 for November. The 860/870 call spreads in my November position expired worthless, confirming a 15% gain for November and a 35% gain year to date for the Flying With The Condor™ service. Recent drops in the market resulted in my re-positioning the Dec iron condor on RUT to 690/700 and 830/840. This position now stands at a net gain of $660 or +4% with position delta = -$31 and position theta = +$99.

Enjoy your weekend.

Details

Written by Dr. Duke

Created: 14 November 2012

SPX spent much of today modestly underwater, but the last two hours of trading became ugly. SPX gave up $19 to close at $1355 while RUT closed at $773, down $16. Trading volume of the S&P 500 stocks jumped up to 3.0 billion shares and trading volume increased 16% on the NYSE. Trading increased 17% on NASDAQ. VIX increased to 17.9%, reflecting increasing concern on the street that the fiscal cliff cannot be avoided.

Retail sales dropped 0.3% in October and the PPI decreased 0.2% in October. Since neither of these reports were really very negative, one has to assume the selling is related to Obama's recent statements taking a hard line on tax increases. Many on the left appear to think taking the country over the fiscal cliff is good politics.

My Dec iron condor on RUT stands at a net gain of $820 or +5% with position delta = +$59 and position theta = +$55 (on 20 contracts). The pressure is increasing as the markets fall; the theta/delta ratio is near 1:1 and the delta of the 720 put is 16. If the carnage continues tomorrow, we will need to adjust this position.

Details

Written by Dr. Duke

Created: 13 November 2012

The S&P 500 Index spent most of the day in positive territory, but sold off during the last hour of trading to close at $1375, down $6. RUT dropped $5 to close at $789. Trading volume jumped back up from the post-holiday numbers with 2.6 billion shares of the S&P 500 stocks trading (this is right at the 50 dma). Trading increased 36% on the NYSE and increased 30% on NASDAQ. VIX closed unchanged at 16.7%.

The SPX chart is looking a little scary with this afternoon's sell-off. With the past four trading sessions, up until about 3 pm ET this afternoon, SPX was holding support roughly at the 200 dma pretty well. I was encouraged. But the close below the 200 dma and just above support at $1370 is on the edge of a large area of "no man's land", i.e., not many obvious levels of support until you get down to about $1330. Hmmm...

My Dec iron condor on RUT is doing fine with a gain of $1,580 (10%) with delta = +$37 and theta = +$51.

I will be watching the market even more carefully than usual tomorrow.

Details

Written by Dr. Duke

Created: 12 November 2012

 Veterans day was yesterday, but it appears that many traders took today off to observe Veterans day. Trading volume in the S&P 500 dropped to 1.9 billion shares while volume on the NYSE dropped 60% and trading volume on NASDAQ decreased 23%. SPX closed unchanged at $1380 and RUT lost $1 to close at $794. VIX dropped almost two points to 16.7%. Today marks the third day SPX has traded right at the 200 dma and today's doji candlestick confirms the indecision in the market. We are at a tipping point.

No significant economic news came out today; all traders are watching Washington for evidence of a deal to avoid the fiscal cliff. The dangerous part of this situation for traders is that big market moves in either direction are possible on the slightest news and one can be easily whipsawed in this environment.

My Dec condor sits at +$1,420 or +9% with position delta = +$24 and position theta = +$64.

So we wait and see if tomorrow brings some news.

Details

Written by Dr. Duke

Created: 09 November 2012

Traders were encouraged this morning after the University of Michigan consumer sentiment report unexpectedly increased to 84.9, up from October's 82.6. SPX traded as high as $1391 before falling off in afternoon trade. SPX closed up $2 at $1380. RUT rose $1 to close at $795. Trading volume dropped back to the 50 dma with 2.6 billion shares of the S&P 500 trading. Trading on the NYSE dropped 2% while trading volume on NASDAQ decreased 4%. The VIX dropped to a low of 17.7% before rising back to 18.6% at the close. SPX recovered and traded back above the 200 dma at $1381, but could not hold those levels and closed back below the 200 dma. RUT traded as high as $801 today, well below the 200 dma at $807.

Traders are looking for bargains with large short put positions being entered in AAPL and large long call positions in GOOG. These are aggressive traders trying to find the bottom. Until we get some definitive news regarding the fiscal cliff, it is dangerous to commit to a bullish stance.

I closed the 750/760 puts spreads in my November iron condor position for $0.46 today. Assuming the 860/870 calls expire worthless (seems like a safe bet), this position will result in a gain of $2,560 on 20 contracts or 15%. This brings my year to date results for the Flying With The Condor™ service to +35%.

My Dec condor stands at a P/L of +$1,380 or 8% with position delta = +$29 and theta = +$53 (on 20 contracts). The delta of the 720 puts stands at 11, so the put spreads are reasonably safe thus far - but that assumes the devastation has ended. That is far from clear. The wrong news coming out of Washington over the weekend could push us down much farther.

Let's put this ugly and depressing week behind us and focus on enjoying the weekend.

Details

Written by Dr. Duke

Created: 08 November 2012

SPX appeared to be rallying a bit this morning after opening at yesterday's close and trading higher. But any relief was short-lived. SPX closed at $1378, down $17. RUT followed suit, losing $11 to close at $794. Trading volume dropped form yesterday's highs but remained above the 50 dma with 2.9 billion shares of the S&P 500 trading. Trading on the NYSE dropped off 13% and also fell 9% on NASDAQ.

Today's price action took SPX through its 200 dma at $1381 and there was no rescue by the bulls. SPX closed at its low for the day. RUT broke through its 200 dma yesterday, and at least on my chart, broke through the lower edge of the trend line I had drawn on RUT since mid-September. Today's market levels take us back to roughly late June or mid-July on the broad market averages. We are still well above the low of the market back in October of 2011, but we are giving away this year's gains very quickly. SPX is now only up 9.5% for this year.

The talk on the street focuses on political gridlock, higher taxes, more regulations, and upcoming recession. I didn't foresee it, but there was a lot of hope for change built into the pre-election market prices.

My Nov condor stands at a P/L of +$2,200 (+13%) with delta = +$76 and theta = +$212. The Dec position stands at a P/L of +$980 (+6%) with delta = +$28 and theta = +$61. I will apply my two sigma time stop to the November position tomorrow. Unless this market bounces, I may be closing the Nov put spreads.

Where is the bottom?

Details

Written by Dr. Duke

Created: 08 November 2012

Traders sold off in strength in reaction to the election results. To some degree, one's analysis reflects one's politics. The most politically neutral analysis simply sees the current political landscape as conducive to continued political gridlock leading to recession next year as taxes rise and automatic spending cuts kick in. SPX lost $34, closing at $1395 while RUT lost $21 to close at $805. Trading volume jumped up dramatically with 3.3 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE rose 32% and trading on NASDAQ rose 15%.

Regardless of whether one drew his support line on SPX at $1405 or $1400, support was broken today. That was the area where we spent most of August. The 200 dma is at $1380. RUT fared even worse, breaking its 200 dma at $807. Tomorrow will be crucial for technical analysts watching the charts.

Today's big move downward actually helped my condor positions. The Nov position stands at a P/L of +$2,420 or +15% with delta = +$39 and theta = +$194. The 760 puts have a delta of 8, so the downside is pretty safe thus far. The Dec position is up $980 or 6% with delta = +$1 and theta = +$69. The delta of the Dec 710 puts is 11, so the put spreads are still relatively safe.

So now we wait to see of the carnage continues or we get a bit of a bounce after today's big drop.

Details

Written by Dr. Duke

Created: 06 November 2012

Virtually everyone in this country is focused on the election today. Will the results move this market? The market continues to chop sideways; the bulls view it as a consolidation phase in a larger bull market trend. The bears portray the past few weeks as the beginning of a new downward market trend. The market's current direction is clearly at a tipping point. I really don't know what effect, if any, this election may have on the markets. A true free market capitalist (there aren't many of us left) would view a win by conservatives as positive (sometimes "conservative" has nothing to do with the party; I voted for a democrat today who is trying to reform our corrupt county government).  But Wall Street has been addicted to the same government hand-outs that blind many voters. The Fed has been propping up this market for several years now. So it wouldn't be surprising to see the market sell off at the prospects of giving up that support. Living independently is always difficult and it will always be tempting to invite government to solve our problems. But you pay for that help with a loss of your freedom. There is a thinly disguised hook in that government program.  Remember when states were free to specify the speed limits on their highways?

The markets opened with little fanfare today, but rallied pretty strongly before hitting resistance. SPX closed $11 higher at $1428 after moving as high as $1433. RUT traded upward $6 to close at $826. Trading volume was rather low yesterday, and by that comparison, trading volume bounced upward today, but the 2.5 billion shares of the S&P 500 stocks that traded today just moved us back up to the 50 dma. Trading volume increased 18% on the NYSE and increased 19% on NASDAQ. Economic news was sparse today. The VIX dropped almost one percentage point to close at 17.6% - still a relatively high number and another measure to suggest we are at the tipping point.

My November iron condor position on RUT is up $2,060 (+13%) with delta = -$60 and theta = +$236. My Dec condor is up $560 (+3%) with delta = -$52 and theta = +$79.

If you haven't exercised your responsibility to vote yet, get to it. In spite of what I perceive as the erosion of our freedoms, this remains the only nation in the world where we can live as free as we do here. Voting is a privilege many people don't have.

Details

Written by Dr. Duke

Created: 02 November 2012

Remember the see saw from the playground at school? This market reminds me of that childhood toy. Yesterday, SPX opened at $1412 and ran to $1428. This morning, SPX opens at $1428 and trades down to close at $1414, almost where we started yesterday. RUT fared even worse, losing $13 to close at $814, almost a 2% drop. Today's move keeps the broad market averages solidly in this sideways consolidation pattern of the past week to ten days. As you might expect, volatility bounced back up with VIX closing the day at 17.6%. Trading volume dropped off from yesterday with 2.7 billion shares of the S&P 500 stocks trading today. Trading volume dropped less than 1% on the NYSE and dropped 3% on NASDAQ.

The non-farm payroll report was the big news of the day, reporting 171k new jobs, better than economists expected, but the unemployment rate ticked up to 7.9%. The jobs report appeared to start trading off on a positive note this morning, but that quickly faded. I suppose the jobs report had something for everyone; bulls could look at it as "somewhat better" or "on the right path", while the bears saw "a weak economic recovery" and "no improvement in the unemployment picture". SPX moved into the red within an hour of the open, and ticked steadily down after 1:00 pm ET.

My November iron condor on RUT stands at a P/L of +$2,220 (+13%) with position delta = -$3 and position theta = +$134 (on 20 contracts). My December position on RUT at 710/720 and 880/890 stands at a P/L of +$1,020 (+6%) with position delta = -$23 and position theta = +$63.

Enjoy your weekend.

Details

Written by Dr. Duke

Created: 31 October 2012

The last time the NYSE was closed for two days due to weather was for a blizzard in 1888. The markets opened today to very little fanfare and basically traded sideways. I believe we dodged a bullet. If a significant world event had occurred, e.g., if the Israelis had attacked Iran, or more bad news erupted out of the European economic mess, we could have seen a huge crash this morning as panicked traders headed for the exits. But fortunately, all was calm financially while the weather was anything but calm. SPX closed unchanged at $1412 but RUT gained $5 to close at $819. Is the small cap index trying to tell us something? VIX jumped up almost a full point to close at 18.6%.

SPX is treading water at a solid support level around $1410, the range it held most of the month of August. RUT shows a much better defined down trend on the chart from the peak in early September to breaking the 50 dma and bouncing off the 200 dma a few days ago. We can't be sure we are "out of the woods" until both SPX and RUT break out above their 50 dma. But absent any significant news, we may be trading sideways until after the election. This may be great news for you non-directional traders.

My November iron condor on RUT stands at a P/L of +$1,340 with delta = -$14 and theta = +$201. I established new Nov call spreads at 860/870 today to re-balance this position. I had been waiting on a strong market day, but gave up on that. The Chicago PMI came out today basically flat. ADP employment reports tomorrow with the jobs report coming Friday, so we still have the opportunity for some market moving data this week.

Don't let the goblins get you!