The RUT closed at 1065. Just above its 50% retracement and closing in on some very big resistance in the 1070 area. It’s now up 13% in 13 days. It’s at the historical upper end of bounce size.
There’s only been 5 cases since 2006 that NYMO closed above 290. It’s very likely we will soon see a relief, but who knows. Cobra (a great technician) suggests that NYMO is pretty much the only overbought indicator you can really rely on in extreme environments.
Ideally we can get any sort of pullback in the next few days without the market screaming too much higher. I removed most of my calendars today (as I mentioned) which actually helps with the upside risk (since they were all just about breached). I can withstand a move to 1080 without much more pain (still painful). I am going to do a lot things to the Rhinos if I can get a move to about 1045/1050 area which is only 1% away. If we get to late Friday and we don’t have any down move, I’ll have to start managing the upside risk and accepting the loss. Any move to the 1040 area puts my trades profitable, any sustained move above 1070 will likely make this a moderate losing month.
How do I think I did since last week??
Let’s start with March:
I kind of played this from an odds-perspective, the RUT move was quite extreme and very over-extended. I kept getting out of things on little dips and I got almost 50% of the trade off on one particular dip 3 or 4 trading days ago. I am glad I did, that was @ RUT 1033. However, I still have about 15% on and though I had low negative deltas and almost no gamma, this move up to 1065 at delta -200 and low gamma is still a 6k-10k loss if I closed it all now as opposed to 4 days ago. The odds were and potentially still are in my favor for a pull back sometime in the next 3-4 days. I don’t have any risk to the downside and almost no gamma, I have defined static upside risk so I am going to let this thing play out a bit longer. On one side, the odds were with me on waiting but on the other side, its 17 DTE and I could have just closed the thing down. I had low gamma, we were approaching extremes and I felt I had better opportunities to exit. I regret just not closing it down especially now that I see the RUT close is 1065! Even 1055 and hovering around there for another few days would have probably been net positive with the Theta.
Now April:
I’ve had pretty high negative deltas these past few weeks and I added some call BWBs and calendars to hedge. However, I think I should have probably added more at around 1045, but it wasn’t quite at the place I needed to add and for all the other technical reasons, I wasn’t in a rush to add. The big big run-ups have been happening in the last 15 minutes and much after when I do adjustments. I never like to do adjustments in the last 30-45 minutes. So when it hit 1050 yesterday, I’d have added if it was intra-day towards 1-2pm but it wasn’t. When it opened today, I was patiently waiting any modest pull back to add in more and while doing that, I reduced upside risk by removing most of the calendars that were starting to get over-run. Today it ran up again last 15 minutes and now it’s at RUT 1065 and my April trades are suffering.
Having looked a the run up and considering the NYMO information from yesterday, I figured that we would have a pull back to alleviate those extremes. Unfortunately now the pull back will start at RUT 1065 🙂 and I’ll be in the same place as before when we make that adjustment. I now have to keep on that plan of waiting for a smallish pull back as the upside risk is defined and manageable to about 1080 which, I cannot see happening before we retest 1045/1050. The run up has been too extreme and there’s just too much resistance in the 1070 area. If it gets to 1080, this market is doing something very different and I simply don’t understand it. At that point, I’ll have to start taking loss and adjusting the trade. So my plan for now is adjust at RUT 1045/1055 area or adjust at RUT 1075/1080 area whichever comes first.