What A Difference Decay Makes

Wow. Yesterday was a great example of the type of fake out I was talking about on Twitter last Friday. It ripped the face off the shorts. But does it make me bullish? No. It was just a wave pattern that I felt had some potential of occurring.

I was ready for it, but was a day late in my timing. I noted on Twitter yesterday, "what a difference decay makes".

When you're using options, you can be right on direction and still lose money if you're wrong on timing.

The bounce I was looking for on Friday never really materialized. So I held the 3 tranches of SPY calls that I bought in anticipation of it over the weekend. The premium decay really rotted away at the upside potential yesterday though. Not good.

I had to employ a booster. I used the SSO both in the pre-market and at 1:25pm EST (yes, just before the big break down). I traded it against inventory of separate tranches of SH, SDS, and SPXU.

When the market took off to the upside, I scaled out of the SSO from 1150-1158. I used the profits to get out of the highest strike tranche of SPY calls and kept the other two.

The futures have done a deep retracement in the overnight session. Here's where it gets tricky.

I see two scenarios: there is nothing to stop a test of the area between 1200-1230 on the cash S&P. There is also no reason why it must get that high. Indeed, given the action overnight it looks like the cash market may back off yesterday's late day highs of 1162.52 and perhaps only retest them -- at the most.

Since I have now adjusted my inventory and still have a little upside potential and am still looking to add downside delta, I am leaning toward getting longer on any weakness today (but not below 1139) with more calls and NOT adding to my short inventory unless we get above 1162.52 -- preferably the 1200 area.

In other news, the WSJ reports this morning that French banks are having trouble borrowing dollars.

'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."

I was quite early and vocal about France, so I'll not add much here other than to say watch out. Now is not the time to short them either. But the above quote is saying that because they can't get their hands on real money they're going to use Monopoly money instead.

I am quite sure the market will deliver the sobering news that there is no market for them.