What to do on a big down day?
Trade according to your plan. Ignore the noise. Know exactly how your account makes money, and keep doing it.
You cannot see your account value increase every day, or every week, or every month. But, you can take correction periods like this one and do the things that set you up to make a lot of money when the selling ends, which it will. Look for opportunities.
Today, we increased our new XLB position and it’s now down $167. We adjusted our WalMart position by rolling all of our short puts out to the MAY2 weekly expiration. That position is now down $520 with continuing daily time decay of about $27. Please stay tuned for the lessons that will follow from these positions. We will use them both to create income over the next few months.
I spoke about the concern that occurs when my Delta reaches a pre-determined high point. I watch for it to approach 10,000 beta weighted to the DIA. It is now about 8500 and has been risiing. Please understand that this is the level for my account, yours could be drastically different. The point is not the number, but the concept that you must learn to know where the red flags are. This is one for me. I’m not making any moves to adjust it today, but next week I’ll give consideration to that level of risk and make adjustments if needed. My daily Theta remains about $1200, so all in all, the portfolio is doing OK. I am down slightly more than 1% for the year, while the DIA is now down over 3%. This is an acceptable performance during times with increasing volatility. The value of the portfolio is reduced by the higher option prices. We will watch this settle down next week (or whenever it happens) and at that point the account value will rise as the prices to repurchase the short options will fall. It takes time and patience.
I had a stock broker friend once tell me “Patience Produces Profits”. It’s true. All day today, we have been focusing on making a bunch of rolls as we were short a good number of weekly options expiring today. When we are forced to do that during market downturns, we don’t get good prices, but something has to be done. I like to keep cash flow coming from every position. We do not increase positions, except for a few small targeted buys, on days like yesterday or today. There is no way to know if today is the bottom, or if that bottom is hundreds of DIA points from here. Exercise patience and focus on maximizing cash flow from every existing position. Our portfolio Delta is high, so when the selling stops and we get a bounce, we will have many opportunities to sell calls against positions. I don’t usually sell calls on days when prices are down. If you wait for a day when prices are up, you collect a lot more money. The word for today is:
Stay Optioned, My Friend!