The collision of global markets and social mood

Tuesday, June 25, 2013

Navigation And Asymmetry

What came unglued yesterday was the "end of the world" narrative and yielded a 26 point S&P bounce. And while I had such a good weekend that I forgot to stick with last week's intention not to use social media, it was amazing to witness the amount of ill-timed emotion. Two of my favorites were:

Short everything!!! at will

This is a crash. Probably will see 1500.

These people may well end up correct, just not yesterday, and probably not today either. Marketwatch got into the act as well. The headline that ran for much of the morning started like this: "To avoid 2008 crash repeat" . . . . And then right on cue, the Fed doublespeak began with NY Fed president Dudley's comment that the Fed "isn't accommodative enough."

So the endless BS was still in force. I just dealt with it much better by being conscious of my emotions. It's so easy to forget for a split second and get sucked into the drama because of our unconscious, automatic, responses. We must be the captain of our own ship and navigate through the waters no matter how treacherous they may be.

It was a tough trade being long yesterday knowing that 1536 could well be the target. I used VIX 17 puts but only got about half of what I wanted. I was bidding below the market and never got filled, which told me there was some hesitation to the downside, which was exactly what I was expecting. In hindsight, it wouldn't have been FAR more profitable to have used the ES, but I just don't have enough downside delta at this point to offset the risk, because what could have been a $1,300 profit per contract could have easily been a $1,300 loss.

The VIX puts were so asymmetric to my short position (SPXU) that they were never down even as the market continued to fall. The SPXU profits continued to expand as I bid for more VIX puts.

Today I see 1600 as the target, and possibly higher. The 50-day MA is currently at 1617.91 and falling slightly. It's EOQ. I expect a markup attempt, one that I will likely use to add more short delta. I must admit the 1628.93 gap intrigues me. And 1650 sticks out like a sore thumb. Stranger things have happened.

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