Trading Between the Panicked and the Bold: Navigating the Market's Wild Swings
Monday 11th November - Daily Update
5860 - 5894 the line in the sand is a little further from the shore..
At the start of this year, 1-month realized volatility was stagnant for 3 months, while 3-month volatility declined following Halloween. Is history about to repeat itself?
This is why I detrend prices. On the surface, things appear almost identical to last November, prompting the familiar calls of:
“It’s moved too far too fast.”
I understand these sentiments, but it has only been four up days so far. If we were in an era where 90% of trading was in the underlying equities and the market had moved 5% in just four days, I might agree.
However, we don’t live in that era. Today, it may be more fitting to view underlying equities as the derivative and options as the primary driver. I’m not certain, but I do know that when people have thought the market moved "too far too fast" in the past, it often hasn’t proven true. Yet.
I appreciate when triggers come in pairs; it’s been a while since we’ve seen that. I like it because it allows me to buy calls cheaply and let them sit for a month or two.
What this means is that I buy in the lower red area when panic sets in for one group and hold while another group starts worrying about the market going "too far too fast."
We need to find balance somewhere between these two groups of panic.
I use this kind of analysis on all 500 tickers in the SP500 to construct a portfolio.
You can see more in this week’s weekend rundown and portfolio update here.
Current Open Equity = 35.9%
Stop Loss Trigger = 29.1%
Current Closed Equity Return = 26%
Our open equity outstanding is just shy of 36% since we started in Dec ‘23. We have been able to capture 26% returns in closed trades, meaning ~10% open equity still belongs to Mr Market. Until we close the trade it doesn’t yet belong to us!
If all our stop losses hit today bar any gap risk we hope to close ~29%
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Our current portfolio heading into this week…
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