NFP pushed price near the upper b/e, so, -2 111 puts @1.87. Broadens out upper b/e some more but now the downside risk just looks ridiculous, black swan would destroy me. Delta neutral at 109, have to aggressively buy puts once crossed to hedge the short puts. unrealized p/l: -$600
Price has come in a little and the spread isn't looking too bad for now, -260 deltas here at 110.10. Delt neutral around 109 SPY. Moderate downside would be good for the spread, though, again I have those short puts so anything swift and the spread would get "blowed out", to quote Emmitt Smith. Could buy some otm puts, but trying to limit adjustments right now. Looking back, those short 103 calls were premature indeed, spread would have more wiggle room on the upside. unrealized p/l: -$250
Did some calculations, selling back everything on bid, buying back everything on ask, simultaneously, would lose +/-$400 as opposed to the unrealized p/l pricing at midpoint. That would be minimum 16% of profit. Mainly due to the b/a spread on the 104 and 106 calls. The same strike puts have a one cent spread, but I don't know if you could replicate the initial spread in the puts. So yeah that's another concern on the execution side of things. Had a nice pullback overnight and the spread was looking decent but we've been rallying all day. Added this vertical @ .37 credit: -17 110 puts +17 109 puts Basically widens upper b/e a little and has a bigger profit in this 110-112 SPY area. Still have to hedge more moving through 111 SPY. Going to have to add some directional stuff in order to minimize the amount of hedges. I had a 'hunch' we would move higher in the first post, but to put money on a straight directional bet like a vertical or something, I dunno. But at the same time, this spread shows me I can't just sell premium and wait for neutrality, cause I'm gonna get blowed out by commissions/execution/and maybe black swan with those short puts. unrealized p/l:-$310
Strong bounce off of the 8:30 #'s, so: -4 113 puts @ 2.60. 109 SPY is the Maginot line for a downside adjustment, market seems neutral to up right now. unrealized p/l= -$200
Spread has actually made it back to b/e, a couple of days of neutrality is all it needed. That said, you throw in the slippage to get out of this 8 leg monster and I'd be out -$400 or so. No quick fill on the 104/106 calls either, the 104's traded 75 so far today, the 106's traded 10,000+ but that was probably a block. Most of the loss is with those -2 103 calls, that first adjustment I made with Bernanke's comments at Jackson Hole. Without that early hedge the spread would actually be +$900 right now. Monday morning quarterback, ofc. So, in the next spread I'm not going to make any early downside adjustments until +200 deltas or so. I realized last week the execution problem. A couple things I will do to offset that. First, rollup the bought ITM call if we move higher. For example, I'm buying the Oct 111 call, if we move through 115 SPY I will take the gain from the 111 Call and move up to a higher strike. The closer ATM, the better execution/fill when it's time to completely exit the spread. Secondly, sticking to the original idea of only buying my hedges. Selling calls or puts that go ITM, there is too much execution risk, not to mention the black swan risk with the sold puts. So, I'd rather proactively hedge buying calls on the upside and vice versa with the puts. Obviously this brings down the profitability of the tent spread everytime you buy, but I think easier fills/execution are a priority, imo. I mean, I own those 104 calls right now and there is barely any volume and most of the time a .08 cent spread. Legging out, sure, but let's be real that's just scalping ES. If I could do that I'd be throwing around 50 lots. So anyway, the spread for October: +50 111 Calls @ 2.54. -65 113 Calls @ 1.53.
Didn't get to update yesterday. Made one adjustment for the October spread: +2 114 calls @ 1.52. Both the Sept and Oct spread sit around b/e right now. Getting out of the Sept spread would still be a mission though, at least the 104/106 calls, in a timely fashion. Oct spread does have a slight bullish bias, once we move through the gap below will start to reevaluate.
Sept spread is b/e the day before expiration. Good simulation of how it handles a quick move up. Sustainable, but needs those neutral days and/or proactive directional bet hedges. October spread is b/e also, but I'm scratching that one. Going to sim one with a farther OTM call to help execution risk. +50 112 Calls @ 2.72 -86 115 Calls @ 1.19 Pretty much the same spread as before, provides some time to manage immediate downside, extreme upside risk that would have to be hedged with calls. Hedging upside starting around 113.75 SPY. Bullish here until the next bearish economic # and/or macro event that causes a bearish intraday trend with no pullback. Looking for the breakout to 1150 ES/115 SPY.
Oct spread sits in a decent spot for now. ES daily close wasn't pretty, long wick after hitting 1132 overnight. FOMC, econ #'s and have to watch EU debt headlines next week. Irish denying the rumors, didn't the Greeks do the same thing before hell broke loose for the Euro and everything else earlier this yr? Upside hedging north of 113.75, southside around 110.50/111. Unrealized p/l: +$130
FOMC and Housing #'s this week, among others. I think 1150/115 SPY is possible before next NFP on any positive econ numbers. Beyond that, I don't think 117.50 (swing point from May 12th) is possible unless a good NFP number on Oct 1st. Cautious if we get anymore euro zone debt headlines, we were moving higher through April along with Greek yields, and then there was the ratings downgrade right near the top, 122.12 SPY, amongst other issues, flash crash, etc. Wouldn't be surprised if Irish debt story continued. FXWRAP: Euro Slides On Ireland Jitters;Dollar-Yen A Stalemate NEW YORK, Sept 17 (MNI) - The dollar racked up modest gains vs. the euro and held more or less steady vs. the yen in a Friday session that saw the euro give up overnight gains as fresh jitters emerged about the health of Ireland. Euro-dollar was changing hands at $1.3045 in afternoon dealings Friday, in the lower end of the day's $1.3020/1.3100 U.S. hours range, the euro beginning the day near that high, only to see early losses. Overnight, euro-dollar had rallied to $1.3159 as the greenback took on a solidly defensive tone. Dollar-yen by contrast was trading at Y85.82 in afternoon dealings Friday, the dollar not far removed from its Y85.80 starting level of the day and the pair contained to Y85.65/85.87 throughout the U.S. day. Afternoon dealings had slipped to the typical pre-weekend trickle but morning dealings, at least in euro-dollar, were much more brisk. After rallying to $1.3159 in overnight dealings, euro-dollar slipped steadily ahead of the U.S. trading session as Mid-east accounts and short-term speculative players booked quick profits. But euro losses accelerated as the U.S. session got underway as traders' attention was drawn to published reports that discussed the risks to the Irish economy from the restructuring of Anglo-Irish bank. That bank, split into a "good bank" and a "bad bank" by the Irish government at the beginning of September, is saddled by huge loan write-offs associated with indiscriminate lending practices during Ireland's real-estate boom. A recent New York Times report noted that, of $96 billion in loans on the bank's books at the time of a government takeover, only about $15 bn are current, leaving the bank, and the Irish government saddled with losses. ------------------------------------- Fed holds key for stocks to break range - If the Federal Reserve's view of the economy brightens by just a glimmer next week, it could push the stock market above its four-month trading range. The S&P 500 closed the week at the higher end of that range, just below 1,130. Some chartists see a break above it as presaging a test of the year's highs. But options trading suggests some see 1,130 as the market's ceiling and are protecting their portfolios against a decline. Other investors see the Federal Open Market Committee policy meeting as the turning point that stocks have been searching for to break out of the range with conviction. "Going up to the close on Tuesday, we could see a little bit of enthusiasm, and perhaps it could be the catalyst that could push us above 1,130 on the S&P," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. In late August, Fed Chairman Ben Bernanke said he would need to see a significant deterioration in economic conditions before easing monetary conditions further. Recent data, including a stronger-than-expected reading on private-sector jobs growth, could prevent further action from the Fed. If the Fed does move, people "wouldn't interpret it as a bad sign (for the economy) but as the Fed being vigilant in trying to keep this recovery going," Jacobsen said. Most analysts don't see the Fed moving in that direction immediately, but Jacobsen said any signal will be welcome. "It could be the impetus that's needed to push people out of bonds and into stocks, finally," he said. ALL EYES ON TECHNICALS Even with stocks losing a bit of momentum as some technical indicators suggest, the S&P 500 seems poised to move above 1,130. Some chartists see breaking that level as a harbinger for future gains, with overhead resistance not seen until 1,173 and then at the year's high near 1,220. Having pierced 1,130 three times in the last three months, the level is garnering attention even from investors who are more focused on fundamentals than technical analysis. "Whenever economic uncertainty bubbles up, that's when technicals take over in terms of what market participants look for," said Wasif Latif, vice president of equity investments at USAA in San Antonio, Texas. "A lot of people have been looking at 1,130 and we look at it as a component because other people are acting on it." For the week, the Dow Jones industrial average .DJI gained 1.4 percent, while the Standard & Poor's 500 Index .SPX advanced 1.5 percent and the Nasdaq Composite Index .IXIC jumped 3.3 percent. OPTION TRADERS HEDGING BETS The CBOE Volatility index, or VIX VIX.N, continued to show high volume as investors were bracing for volatility. "After VIX September options expired on Wednesday, I expected that index options activity to drop," said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research in Austin, Texas. "But on the day, there was actually a big volume on puts and calls, suggesting that as soon as September contracts expired, they replaced the VIX contracts again for protection." A large put spread was made on the S&P 500 index .SPX that suggested a substantial move lower in the short term, according to Chris McKhann, analyst at optionMonster.com. HOUSING DATA ALL WEEK LONG In terms of economic data, next week's schedule has a daily dose of housing indicators. From the housing market index on Monday to housing starts on Tuesday, followed by existing home sales on Thursday and new home sales on Friday, investors will be able to get a clearer picture of a key sector that must improve before the economic recovery can really kick in. "It's been so terrible lately that it doesn't have to be strength -- just a sign of life in the housing market could be support for financial markets overall," Jacobsen said.
Home Sales in U.S. Probably Rose in Sign Real Estate Market Is Stabilizing Home sales probably increased in August, a sign the U.S. real estate market is stabilizing after the expiration of a tax credit caused demand to plunge, economists said before reports this week. Purchases of new and previously owned homes rose 7 percent to a combined 4.395 million annual pace, according to the median forecast in a Bloomberg News survey. A separate report may show orders for long-lasting goods excluding transportation equipment rebounded last month. âHousing is in a fragile bottoming process,â said Aaron Smith, a senior economist at Moodyâs Analytics in West Chester, Pennsylvania. The projected gains in home sales and durable goods are âconsistent with stabilizing growth, albeit at a slowerâ pace than earlier this year, he said. Builders such as Hovnanian Enterprises Inc. face a housing market depressed by unemployment close to 10 percent and rising foreclosures, making it difficult for mortgage rates near record lows to stoke demand. Combined with growth in manufacturing, the figures underscore the Federal Reserveâs view that the economy, while decelerating, will avoid slipping back into a recession. Fed Chairman Ben S. Bernanke and his fellow U.S. central bankers meet Sept. 21 to determine whether the economy needs additional stimulus. The Fedâs benchmark interest rate is already in a range from zero to 0.25 percent, where itâs been since 2008. Economists surveyed by Bloomberg earlier this month forecast the Fedâs Open Market Committee will keep the rate unchanged until late next year. The central bank said in its Beige Book survey of regional Fed banks earlier this month that there were âwidespread signs of a decelerationâ in the economy from mid-July through the end of August. Most areas of the U.S. reported âvery low or declining home sales.â Existing-Home Sales Sales of previously owned homes rose to a 4.1 million annual rate in August from a 3.83 million pace, according to the median estimate before the National Association of Realtorsâ report on Sept. 23 in Washington. The 7.1 percent gain would follow the record 27 percent plunge in July. The following day, the Commerce Department will release the new-home sales figures. The median forecast calls for purchases to rise to a 295,000 pace, up 6.9 percent from a month earlier. Existing-home sales account for more than 80 percent of the market and are counted when a deal is closed. New-home sales are recorded when a contract is signed. The governmentâs homebuyers credit of as much as $8,000 for first-time buyers required contracts by signed by April 30. While the deadline for closing was moved to Sept. 30 from an original June 30, the bulk of purchasers wanting to qualify had already completed the buying process. Temporary Relief The tax incentive provided temporary relief for the industry that precipitated the worst recession since the 1930s. With the economy cooling from earlier this year, lawmakers are now debating whether to extend tax cuts put in place by President George W. Bush. Democrats are pushing President Barack Obamaâs plan to let tax cuts for the wealthiest 2 percent to 3 percent of Americans expire and permanently extend lower rates on individuals with incomes up to $200,000 and for couples up to $250,000. The end of the homebuyer credit, joblessness and sagging consumer confidence prompted a decline in orders at Hovnanian, the largest homebuilder in New Jersey said on Sept 1. The company said its net orders dropped 37 percent in the quarter ended July 31 from a year earlier. Jobs Are âKeyâ âJob creation is the key to a housing recovery, which makes it difficult to predict how improvements in the economy and housing market play out,â Chief Executive Officer Ara Hovnanian said in a statement. That may explain why shares of builders have declined this year, while the broader market has gained. The Standard & Poorâs Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and Lennar Corp., is down 7.7 percent this year compared with a 0.9 percent rise for the S&P 500. Another report on housing this week, due Sept. 21 from the Commerce Department, will show starts of homes rose to a 550,000 annual rate in August, from 546,000 a month earlier, according to the median forecast in the Bloomberg survey. Construction permits for new homes were little changed at a 560,000 pace, indicating ground-breaking will be hard-pressed to pick up in coming months. Rising Foreclosures Builders and sellers are competing with rising foreclosures, which means homes stay on the market longer and prices are restrained. Home seizures reached a record for the third time in five months in August, RealtyTrac Inc. said Sept. 16. The weakness in housing is making the economy more dependent on gains in manufacturing. The Commerce Department is scheduled to release the durable goods report on Sept. 24. Bookings including those for transportation equipment probably fell 1 percent in August after a 0.4 percent gain, according to the median forecast. Excluding transportation, orders probably rose 1 percent last month, the survey showed. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, may have increased 4 percent.