Jul 12 – Rhino M3 Trade Update

Struggling here with the massive up move in a short period of time. We’re at ATH on the SPX and RUT is tagging 1190 (From 1088 just a week or two ago). This is the one type of move that stresses me out the most with the Rhino trade.

The Aug trades are now all negative by about 1-2% when they were profitable by about 4% just a week ago. I added call calendars last week and hedged off some of the BBs I put on as downside hedges with calls (converting to M3) and some futures but it’s not been enough and we’re now negative and in a zone of the trade I hate. These things can handle, you know, normal 6-8% up moves in a cycle but when they get up to this range (10%), things start going negative and they start getting annoying to manage as we’ve got to deal with decreasing theta and zones where even pull-backs don’t produce much recovery because of upside hedges put in place. As I’ve switched from old school modified iron condors where I dreaded volatility and down moves, now I dread never-ending 9%+ up moves and wish for corrections, neutrality or a 45 day trade cycle that doesn’t have a 9% up move 🙂

The move is stressing me out because there are a lot of imponderability about it. I don’t know if this is the start of a huge break out because of helicopter CB money (BOE and BOJ are easing) or a typical normal over-reaction short covering from the Brexit event. All breakouts of ATH have an 80% failure rate and thus I am trying to be patient on any aggressive upside adjustments. We’ve got a Bradley turn date, some big negative divergence, volume was down -17% yesterday on index, we’re vastly oversold, the T2108 % of stocks above the 40DMA (69%?), and we’ve tagged upper BBs. The 80% failure rate can take days or even weeks so we’ll have to be patient but with any luck it starts now.

My plan is to add upside hedges on any normal sized pullback (thus getting the trades more balanced) and hold off on adding upside adjustments if we just continue up or pause unless we break 1199 with conviction.Then I will reconsider my plan and probably start taking losses. My guess is RUT stalls around 1190 area and pulls-back, I think John Locke is also recommending being not so aggressive on upside hedges right now and also believes the same thing re 1190 as a reversal zone at least short term. My nagging “back of mind” thought is that these markets aren’t following the usual, we’ve got central banks injecting like mad (BOJ and BOE) and this money has to go somewhere. I fear that these Aug and Sep trades might be in some trouble.

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