It appears that the bottom has been found and the rally continues.
The broad market ended sharply higher Friday, scoring the first weekly gain of the new year, as oil futures surged and investors were encouraged by hints of potential central-bank stimulus in Europe and Japan after a tough week for global markets.
The benchmark index SPX closed up 38 points, ending the week with a 2.03% gain for the day at 1907.
SPX 6 month chart
Note that the 7 day Average True Range is at the high end, 52 points, so we may not be at the end of all this market volatility.
The volatility index VIX dropped sharply yesterday also, down 16.3%. The "fear" index closed at 22.34, still above the historical average of 20.
VIX 6 month chart
We only have one open position on this weekend; we were able to close the SPY February Iron Condor for target gain yesterday, but the bulls knocked us out of entry range for the SPX weekly Iron Condor.
RUT February Iron Butterfly
I recommended those who trade the monthly Iron Butterfly either sit on the sidelines this month, trade it with Paper Money, or a much smaller size than usual. Trade details are below:
Original Position Opened January 19:
- SOLD RUT February 1000 call, 31.40 credit.
- BOUGHT RUT February 1050 call, 9.50 debit..
- SOLD RUT February 1000 put, 30.95 credit.
- BOUGHT February 950 put, 15.00 debit.
Order was filled as an "Iron Condor" for $37.85 net credit (all four legs).
BOUGHT RUT February 1110 Call.
Call order was filled for $.95 debit
Downside adjustment made January 20:
BOUGHT RUT February 1000 Put, 47.20 debit.
SOLD RUT February 950 Put, 24.20 credit.
SOLD RUT February 970 Put, 32.10 credit.
BOUGHT February 920 Put, 15.90 debit.
Net debit (all four legs): $6.80
Upside adjustment made January 21:
BOUGHT RUT February 1000 Call, 36.30 debit.
SOLD RUT February 1050 Call, 12.00 credit.
SOLD RUT February 1020 Call, 24.90 credit.
BOUGHT February 1070 Call, 6.25 debit.
Net debit (all four legs): $5.65
The position summary after the adjustment is as follows:
SHORT February 1020 Call
LONG February 1070 Call
SHORT February 970 Put
LONG February 920 Put
LONG February 1110 Call
The position is now a 50 point wide Iron Condor.
Below is the risk graph as of the close Friday:
RUT February Iron Condor
RUT closed yesterday at 1020, which is the short call strike. As I wrote when the second adjustment was made, it may be the better risk management decision to pull the plug and exit the trade, rather than adjust for the third time. If RUT does not pull back on Monday below 1020, it is recommended to exit the position before the end of the day. I cautioned when this trade was opened that it was not a "recommended" live trade, rather a suggestion for those who were anxious for a new trade entry. The market behavior since the trade was entered early last week has certainly proven how risky this market is for non-directional trades such as the Iron Butterfly/Iron Condor.
We must continue to be patient on entering new positions with live capital; as Jim Brown wrote last week in one of the Market Wraps: "It is better to be bored than broke."
Next week's economic news is summarized below:
10:30 am Dallas Fed Manufacturing Survey
FOMC Meeting Begins
9:00 am S & P Case Shiller HPI
10:00 am Consumer Confidence
10:00 am New Home Sales
10:30 am EIA Petroleum Status Report
2:00 pm FOMC Meeting Announcement
8:30 am Durable Goods Orders
8:30 am Jobless Claims
10:00 am Pending Home Sales
8:30 am GDP
9:45 am Chicago PMI
10:00 am Consumer Sentiment.
Updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,