How quickly things change…….
This is being written during a big market drop on April 10. Right now, the DIA is down about 1.25 %. Yesterday, the market was up – quite a bit – on the Fed minutes. Tomorrow – Who knows?
The point is that you need a business plan for your trading so you can ignore these daily movements. I do have CNBC on without the sound every day, and I was thinking earlier today — Does CNBC EVER report that “Things are just ho-hum today with not much going on? “I’m not sure I have ever heard that. It’s always a high energy discussion of something that is moving wildly and that kind of focus completely distorts your thinking.
If you have a plan, you just trade according to plan. As an options trader who is managing a portfolio, you look for opportunities. Today, I am buying back every option position that has declined to 5 cents or less. I can do this commission-free at my broker, ThinkOrSwim. I am looking for rolling opportunities, and selling some puts here and there. It’s buying time, but with a plan.
Updating the WalMart trade – we are now down $265 from the inception of this trade. Delta is near zero, Theta is generating $45 a day. We did sell a new put yesterday and today.
The portfolio’s total DIA Weighted Delta is up to around 7000. This bears watching. Usually, during large market drops, it will approach 10,000 and we are not there yet, but keeping that number front and center. As the market comes down, your Delta will increase partly because of the lower prices on the underlying, and partly because of the rise in volatility. When you understand this, you have exactly what you need to be empowered to work through downturns and use them to your advantage. As volatility spikes, your Delta spikes and amplifies the movement of your portfolio value. Volatility spikes in short, violent moves and nearly always quickly subsides. As the volatility calms down and prices bounce, if you have properly managed your portfolio, you will make money.
Bottom line – Days like this are when you actually make your money by reacting properly and making the right moves.
Stay Optioned, My Friend!