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Weekend Market Commentary 12/11/2015 – $RUT, $RVX

Big Picture:

It’s important to recognize when our market biases are influencing our trading decisions.  Coming into this week I knew the market was looking a little shaky, but it seemed like it was trying to stay afloat.  By the end of the week, the market fell down with confirmation in other markets.  The news is pretty dark right now and I am far from bullish (as usual), but we also need to be aware of two big themes.

First, the market does not go straight up or straight down.  Even if you’re bearish and think the market is heading down to test or break the August lows, it’s important to remember that the market could bounce before taking them out.

Second, there can be significant rallies within a primary downtrend.  The image below show the SPY in late 2008.  Note that the market became trapped below the 200 day simple moving average for quite a while before the real crashing took place.  In fact, the market first went below the 200 day SMA in late 2007 and the real crash didn’t take place until September 2008.  My personal belief is that something similar will play out in 2016 and we’re in the formative stages of that right now.

SPY.2008.marketcrash

 

Successful trading requires perspective and it’s important to keep your perspective regardless of what the media says is going on.  In my mind, the financial media exists to help separate the uninformed from their money.  Sure, they get a little entertainment in the process, but why something is happening is totally irrelevant if you’re an options income trader.  We’re much better when we focus on what and when.

Obviously the big news this week is the Fed rate decision, but that event is 100% unpredictable for us (retail traders) and the outcome is completely irrelevant.  Yes, irrelevant.  From a trading standpoint, all we care about is that some event has the potential to move the markets (what) and that it takes place this week (when).  Aside from that, we only need to think about delta, gamma, theta, vega, and p/l (and maybe a touch of rho).

Market Stats:

12.11.15.marketstats

Levels of Interest:

In the levels of interest section, we’re drilling down through some timeframes to see what’s happening in the markets.  The analysis begins on a weekly chart, moves to a daily chart, and finishes with the intraday, 65 minute chart of the Russell 2000 ($RUT).  Multiple timeframes from a high level create context for what’s happening in the market.
12.11.15.RUT.weekly
12.11.15.RUT.daily
12.11.15.RUT.intraday

Live Trades . . .

The “Live Trades” section of the commentary focuses on actual trades that are in the Theta Trend account.  The positions are provided for educational purposes only.

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I really do have impeccably bad market timing.  This week as part of my trading at work routine I opened a couple of new pTheta positions.  Those positions were stopped out yesterday (Friday).

I also opened a CIB using the Jan4 2016 Weekly options.  My thinking in trading a CIB with only end of day access to the risk graph is that it might be a good experiment in whether or not it’s possible.  I get quite a few emails asking if the trade needs to be monitored all day and I don’t really think it does.

Yesterday I had a signal to roll the CIB lower, but without access to a risk graph I simply closed the position and decided to wait over the weekend rather than get into a position I don’t like because I’m only using my phone.  The CIB was closed for a tiny gain after commissions.  At this point in the cycle, we’re sort of in limbo and I need to make a decision about whether to reopen in January options or push out to February.  It’s pretty early to enter a February trade so I may wait another week before opening another position.  Keep an eye on Twitter this week because I’ll send a tweet if I get involved.

I’ll update the results sheet sometime in the next couple of days.

Click here to learn about the Premium Course that covers the CIB Trade in Detail

Looking ahead, etc.:

 

I’ll be making a decision about whether to continue the Jan4 CIB sometime this weekend.  I’m on the fence about it because I started the trade late and the additional gamma as we get close to expiration is something I’m not crazy about.  I’m leaning more towards moving into the February options even though it’s a little early to get involved.

Have a great weekend.

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  • The Lazy Trader

    Hey Dan,
    Good wrap up man.
    I would lean towards a February CIB. But because it is too early, I would wait until after the Fed meeting. Just my two cents. It would for sure be entertaining as hell seeing you enter a CIB prior to the meeting lol. But perhaps not the healthiest of choices.
    Cheers,
    LT

    • Great job Dan on your YTD performance. It sounds like you are quite bearish for 2016. Will your bearish assessment change how your trade CIB?

      • Dan

        Thanks Jonathan, it has been a good year. Congrats on yours as well!

        I am extremely bearish, but I don’t want that to influence my decision making too much. I am the king of incorrect directional calls!

        The market can change so fast (especially when it’s going down) that I don’t want to bet heavily on direction. My ideal scenario is always to have slightly short to flat delta and that’s what I’ll try to keep no matter where things go. Since I’m something of a perma-bear, I only get nervous when delta starts to get long. I’m much more comfortable being short delta in a rally than long delta in a crash. Fortunately, I assume I’ll be wrong most of the time (curse of being a perma-bear) and adapt pretty quickly when the market proves me wrong.

        Dan

    • Dan

      Thanks LT! Interestingly, I’ve been thinking about entering the CIB even earlier than normal (say 65ish days), but there are obviously tradeoffs.

      I agree with your assessment and I am leaning towards waiting until after the Fed. I’m not worried about what they do/say, but I hate to put on a position only to adjust it a day later. A newly entered CIB is more than capable of handling a big move, but every time you adjust it costs a little money . . . As you know, those adjustments add up!

      Dan