Trading versus Investing
A few readers asked about the earlier trade I mentioned, and what it means to my longer term views, now that most major indices are negative YTD.
The short answer is not a whole lot. I still think we see even more weakness into the second half. But we hit levels and saw enough downside action that a bounce makes sense. Hence, the trading repositioning.
The longer answer is a bit more nuanced: The SPY Puts were sold strictly as a function of discipline. They had grown percentage-wise beyond where I wanted in terms of downside exposure, given where the market is and how quickly we got here. I still have a decent SPY Put position, mostly Septembers; Same for the VIX Calls (August).
Buying the Qs was only a "toe in the water" type-modest trade. Since its now almost in the money by a half point, I'll move my stop loss to breakeven. I'll average up if we rally, and hold the position until it starts misbehaving.
Now I have some upside exposure if we bounce, and enough room that the trade should be no worse than a breakeven (unless we gap down hard).
Tonite will be
lonely I'll be able to finsih a sentence without Cody on Kudlow & Co. I'm sure today's action will generate some interesting conversation.
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How did the VIX calls act this time around?
As I recall from many traders complaining last time, the VIX calls didn't correlate too well with the previous spike in the VIX.
Posted by: Michael C. | Jun 8, 2006 3:45:12 PM
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