Wow, what a day in the markets. It was one of the worst days of the year. The SPX fell 2.5% from peak to trough and the VIX surged 25%. Something you don’t often see is the TRIN exceeding 3. The Trin measures the advancing vs declining issues in the market. When it’s this high it usually signals a reversal on oversold conditions. 7/8 times it’ll reverse. Though it can also signal a big fall (2008/2011).
The volatility increase caused a temporary loss to our MIC. As volatility surges and unsurity increases, our way out of the money credit spreads increased by probably 3-4 fold. We’re still a very far way away from our spreads so we’ll just keep adding debit spreads until Monday if the market should continue to fall. Volatility will have less and less of an affect as we’ve only got 5 trading days left in the month. It’ll quickly dissipate and resolve and all the while our theta is very high. We’re likely holding till Monday unless we have a huge up day on Thursday or Friday along with a volatility collapse. Managing risk over the weekend is key. We’ll want to make sure our delta’s are close to even and make sure we’ve got a nice long range. We’ll let theta and vega work to our favor. As it stands now, our curve is quite safe and our deltas are just slightly positive. All in all a great position to be in. Both our debit spreads and the credit spreads should profit resulting in a nice gain on the month.
I took the down turn as an opportunity to sell some of my year out puts used in the Anchor. This is in prepration to rebalance for our January trading portfolio. It would seem I was a bit premature. I sold about 10% of the puts at 205 and the spy reached 202.98. Ah well.
Today I’ll be just managing our deltas and make sure there is no great exposure. I’ll be on high alert today.