Dr. Duke's Blog

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Written by Dr. Duke

Created: 20 August 2012

 Today's trading was subdued and lacked much direction. SPX traded down as low as $1412 but recovered in the afternoon to close unchanged at $1418. RUT lost $3 to close at $817. Volume pulled back with 2.1 billion shares of the S&P 500 stocks trading; trading volume dropped 19% on the NYSE and dropped 11% on NASDAQ.

No significant economic data was released today. Some news stories over the weekend were a bit negative on the European debt situation. Perhaps that affected today's markets. More likely the markets are just taking a breather after a strong bullish run. Today's trading certainly was bullish, in my opinion. After trading down a bit (but not very far), the bulls brought the markets right back up near or at the starting point. Maybe a pullback is in the cards in the near future - certainly several technical indicators are looking much more over-bought. But so far, the bulls remain in control.

My Sept iron condor on RUT at 650/660 and 850/860 stands roughly at break-even with position delta = -$131 and position theta = +$99 (on 20 contracts).

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Written by Dr. Duke

Created: 17 August 2012

 After yesterday's strong run upward, I was expecting a bit of a breather today, if not a small pullback. And for most of today, that was exactly what was happening. But the last thirty minutes were straight up! SPX closed at $1418, up $3 and RUT ran up $7 to close at $820. Trading volume fell off from yesterday, which was a little surprising for an options expiration Friday. 2.2 billion shares of the S&P 500 traded today; the 50 dma = 2.6B. Trading volume fell 6% on the NYSE and decreased 16% on NASDAQ.

The University of Michigan Consumer Sentiment survey released its findings for August this morning: 73.6, up slightly for the 72.3 level from July. This wasn't news to rally the market and it didn't. I'm not sure what sparked the last few minutes of bullish trading; maybe one of the big boys' computers saw a news item it liked and took off to the races.

VIX closed at a new low for this year, 13.5%. This bullish run is perplexing.

SPX August options settled at $1419.02 and RUT settled at $811.65. The 650/660 put spreads from my Aug condor will expire worthless; this brings our Flying With The Condor™ track record to +40% for this year. The Sept condor sits at -$880 with delta = -$139 and theta = +$99.

Enjoy your weekend.

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Written by Dr. Duke

Created: 15 August 2012

 SPX has stalled around $1405 for several trading sessions now; volume has diminished. One gets the impression that the market is waiting on something. Which way will it tip? SPX closed at $1406, up $2 and RUT gained $7 to close at $804. Trading volume remains weak with 2.1 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped 12% and trading on NASDAQ decreased 3%.

The CPI came in unchanged for July. But the Empire State Manufacturing survey dropped by 5.9% in July after a 7.4% gain last month. Capacity utilization remains tepid at 79.3%.

Perhaps the market is waiting on definitive economic news to push it one way or the other. Most of the news lately has been pretty mediocre, similar to today's economic news - not enough to inspire traders to invest, but not so dreadful as to make them sell either. If Bernanke and company tell us they aren't going to step in to bolster this economy, that could be the tipping factor; my sense is that many traders are gambling that Ben will come to the rescue and that is holding up this fragile market.

If you study the price charts, it is a bit disconcerting that RUT has not been able to even match its highs from early July, much less May. Normally the mid-caps lead bull markets. SPX is stalled at its May highs and has not even threatened the April highs. But one can draw a nice upward trend on SPX since the low in early June. But it is a stretch to find a corresponding upward trend on the RUT chart. RUT has been very choppy and largely traded sideways.

My Sept iron condor stands at a net gain of +$640 with delta = -$85 and theta = +$79. If you have some bullish trades that are going well, enter some tight stops; this market worries me. If you are trading non-directionally, stay alert and trade what the market gives you.

I may not get to my blog tomorrow since I have to prepare for my trading group webinar tomorrow evening.

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Written by Dr. Duke

Created: 14 August 2012

 SPX ran up to $1410 today, but was promptly pulled back to close unchanged at $1404. RUT lost $3 to close at $797. The market appears to have stalled and the longer it sits right here, the more likely a pullback becomes. Today's SPX candlestick was closer to a dojo than an evening star, the former indicative of indecision and the latter a classic signal of the top of a trend. VIX jumped up a bit today, closing at 14.9%, up over one point. But this is still a relatively low level of volatility. Trading volume jumped up from the very low levels of Monday, but remains relatively low at  2.1 billion shares of the S&P 500, but the 50 dma = 2.6B. Trading volume increased 17% on the NYSE and increased 16% on NASDAQ.

Retail sales for July increased 0.8% - a big change from last month's 0.7% decrease. PPI came in at +0.4% for July; the CPI is due tomorrow. For now, inflation appears well contained. I must admit to surprise - how can all of this printing of money have not led to inflation? I am not an economist, but maybe it is difficult to have inflation when the economy is struggling so badly that the pundits argue with each other about whether we are in recession already or about to enter a recession.

I hope you are invested in GOOG and AAPL; they are having strong rallies as the overall market slogs sideways.

My Sept iron condor on RUT at 650/660 and 850/860 stands at a net gain of $580 with position delta = -$66 and position theta = +$92 on 20 contracts.

A reminder for those of you with index option positions: for options with am settlement (most of the broad index options), Thursday will be the last day you may close your positions. If you are in doubt about the settlement specifications for your option, check the web site of the exchange that creates your option, e.g., CBOE for SPX.

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Written by Dr. Duke

Created: 13 August 2012

Many traders, including me, have been expecting a big sell-off, but this market has held up pretty well. Even with the past few days of sideways trading, each time the bears tried to pull the markets down, they were rebuffed. Today was no different with SPX trading as low as $1397, but recovering to close at $1404, down $2 on the day. RUT lost $2 to close at $799. Trading volume continued to drop from last week's low levels with only 1.8 billion shares of the S&P 500 stocks trading today. The only time this year that trading volume has been that low was the half day of trading before the July 4th holiday. Trading volume on the NYSE was down 13% and trading on NASDAQ was down 14%.

The VIX hit a historic low today; it closed at 13.7%. VIX has not closed at a lower value in all of 2011 and 2012. This seems to suggest a very high level of complacency - contrarians may regard this as a danger signal.

My September iron condor on RUT stands at a P/L of +$480 with delta = -$80 and theta = +$89. Dropping IV has improved the position a bit. The call spreads are about one standard deviation OTM. This position is now 38 days from expiration; at this point, time is beginning to be on our side. If the news headlines continue to cooperate, maybe this market uptrend will continue higher. But I think it is fragile; be careful out there.

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Written by Dr. Duke

Created: 11 August 2012

The Standard and Poors 500 stock index (SPX) traded down a bit to $1396 during Friday's trading, but recovered to close at $1406, up $3. So SPX remains right at the resistance set back in May. RUT lost $1 to close at $802. Trading volume fell off with only 2.0 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 11% and trading volume on NASDAQ decreased 7%. 

There weren't many headlines or economic reports to move the markets Friday, so the debate about this market continues. The one camp sees no basis for the recent rally and expects a significant pullback any day. The other camp simply points to the chart and the pattern of higher highs and higher lows. SPX has been trading sideways since reaching this $1405 area earlier this week. A decisive break-out above $1407 would be very bullish. The bears tried to sell the market earlier Friday and traded SPX down to $1396, but could not hold it. So significant bullish support remains. Is this based on expectations that the Fed will announce another round of quantitative easing in September?

My Sept RUT iron condor position stands at a P/L of +$340 with position delta = -$80 and position theta = +$79 on 20 contracts. 

Enjoy your weekend.

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Written by Dr. Duke

Created: 09 August 2012

We traders have become jaundiced over the past few years. The markets have been extremely volatile. We jump on the run upward and it turns and runs us over the next day; and then while we are still licking our wounds, it turns back upward. So it isn't too surprising that the current topic of discussion is whether this rally is sustainable, or simply: Is it safe to get on board? Today's market just chopped sideways without much net progress in either direction. SPX gained $1 to close at $1403 while RUT gained $3 to close at $803. Trading volume fell off to 2.2 billion shares of the S&P 500; trading volume dropped 11% on the NYSE and dropped 10% on NASDAQ. VIX was unchanged at 15.3%.

SPX appears to be trapped just below the resistance set in early May around $1405. By contrast, RUT is not even close to its May highs at $826. I find it hard to rationalize further moves higher, but you can't argue with the tape. That is why I closed the call spreads of my August condor even though we still had a $50 cushion to the upside. In a similar vein, I entered a contingent stop order to protect the profits in a GOOG put spread that is up about 30%.

Initial unemployment claims came in about six thousand lower at 361k, while continuing unemployment claims actually increased by 53k to 3.3 million. One more mediocre economic data report to put on the pile; it truly is the slowest economic recovery on record... and the market is trading higher.

My September iron condor on RUT stands at a P/L of -$160 with delta = -$87 and theta = +$87. The 850/860 call spreads are about one standard deviation OTM with a delta of 15, so it is tight but not yet close to an adjustment.

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Written by Dr. Duke

Created: 08 August 2012

The markets slowed their upward surge today, but this may just be a breather on the march upward. SPX gained $1 to close at $1402 and RUT lost $1 to close at $800. SPX can't seem to decisively break through the May highs of $1405, but it is too early to count it out. SPX is standing on the doorstep. Trading volume backed off today with 2.3 billion shares of the S&P 500 trading. Volume dropped 12% on the NYSE but only decreased 1% on NASDAQ.  VIX closed at 15.3%; one has to go back to March of this year to find lower values of VIX.

I closed the 850/860 call spreads of my Aug iron condor on RUT today for $0.10. Assuming the 650/660 put spreads expire worthless in about 10 days, the August position gains $2,420 on 20 contracts or 14.5%. This brings the year to date gains for the Flying With The Condor™ to 39.7% as compared to the S&P 500, up 11.4%. My Sept RUT iron condor stands at break-even with position delta = -$82 and position theta = +$81. This position still has 43 days to expiration, so we are just getting started. The fact that delta and theta are of the same magnitude shows the pressure on the call spreads by the recent upward trend. The Sep 850 calls have a delta of 15, so we are still a ways from needing to adjust this position.

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Written by Dr. Duke

Created: 07 August 2012

 The markets marched on to set new highs today, seemingly in the face of many serious economic issues. SPX closed at $1401, up $7 while RUT tacked on $7 to close at $801.Trading volume bounced back upward today with 2.5 billion shares of the S&P 500 trading, but the 50 dma = 2.7B. Trading on the NYSE increased 14% and volume increased 24% on NASDAQ.

SPX broke the highs from early May ($1405) and traded as high as $1407, before being slowly pulled back to its close at $1401. Similarly, RUT hit a high of $806 before pulling back. Resistance on RUT's chart can be found in the area of $808 to $810.

My Aug iron condor at 650/660 and 850/860 stands at a net gain of $2,380 on 20 contracts with delta = -$20 and theta = +$67. My Sept iron condor on RUT at 650/660 and 850/860 stands at a P/L of -$580 with delta = -$91 and theta = +$82. The Sept 850 calls are feeling the pressure with delta = 17.

Did any of you play the straddle on PCLN today? The stock has lost over $105 in after hours trading; the straddle had priced in a $53 move. Owning stocks is dangerous these days.

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Written by Dr. Duke

Created: 06 August 2012

 Markets traded up again today after an extremely strong Friday, but volume fell off even further. SPX gained $3 to close at $1394 and RUT closed at $794, up $6. But trading volume fell to 2.2 billion shares of the S&P 500; trading on the NYSE decreased 15% and volume fell 12% on NASDAQ. SPX was up higher during the trading session, but gave back about half of its gains in the last half hour of trading. RUT ran as high as $797 before pulling back. That $797 level was the high on July 29 and 30 before the markets traded back down in the last cycle. That raises the question of whether this market can trade higher from here. Perhaps traders see the next FOMC meeting in September as too far away, so they are pulling back in their exuberance based on expectations of another round of quantitative easing. Declining volume at least supports that thesis. VIX remained essentially unchanged at 16%.

No economic news or reports came out today and it looks like a slow week for significant economic data being released. But Europe is the wild card; who knows what might happen or what Mario might say from day to day?

My Aug iron condor on RUT is up $2,340 on 20 contracts with position delta = -$22 and position theta = +$83. My Sep condor stands roughly at break-even with position delta = -$74 and position theta = +$92.

It is said that markets love to climb a wall of worry. If so, this market should have higher to go because we certainly have plenty to concern us: our weak economic recovery, the prospect of a second recession, Europe's sovereign debt situation leading to a global economic malaise, etc. My view is that we will continue with these mini-cycles up and back down with little forward progress. I always get cautious as I enter the August to October time period - it seems like bad things tend to happen this time of the year.