whoa.
That sucked.
Market fell 6.5 or so percent in two days. The speed of the decline is extremely rare. It used to take 7 days to fall that far – historically. The VIX (volatility index) is 97% above its 21 day moving average. It’s only been higher during the flash crash and the U.S. Debt downgrade. The put volume is also the highest ever recorded. The VIX is up 40% and the cpce ratio is in extremes. Probably more down to come but we should expect some bounce as all these extremes suggest it is near. The 198 level on spy is significant and I am hoping it holds for now. The interesting thing is the Small caps out performed on Friday right at a significant level and maybe that suggests the SPX will too at least during this leg.
However, I am sure that more down will come after the bounce. Not to say we won’t instantly go down Monday. You might get all the folks who don’t follow the market get scared by the crazy news on TV and newspapers this weekend and they will call their brokers and sell out of their 401ks. That brings a new type of seller not present before and that worries me re Monday and having more down before a bounce.
I wish I was out of my protector portfolio and scaled into the new strategies I’ve been trading (m3, bearish butterflies and rock) all of those are still up cash! Resilient damn trades! Not to say they don’t have weaknesses but they are more well rounded than an MIC or protector.
My protector went from plus 4.5% to negative something or other over two days. That hurts.
The MICs for September are all down now and heavily in the 5%+ range due to the massive volatility increase and the fact that most of this extremely fast decline came in after hours or five minutes before close making it very challenging. The loss hurts even more than the protector. Nothing could have prevented that. The speed of descent gave little room to adjust at good prices and the massive (and I mean massive) increase in the volatility has caused the options to be priced extremely high and since we sold that insurance, well it’s more expensive to buy back and just as expensive to adjust. It’s extremely (almost correction level) expensive. Time and (hopefully) prudent adjustments will solve that as expiry is three weeks away.
My account balance, though at all time highs three trading days ago is now about 10 percent from that level. Most of the loss is from the protector (which is expected and not worrying in any way). The protector puts are now more delta negative and as the market falls it should more closely match the losses on the longs.
The MIC can likely get back up to break even or maybe positive with some luck, while the protector requires an up move. But bad news aside, with declines like this we have opportunity and I am spending the weekend thinking about how to handle Monday and our current trades and what to do with future down moves re position.