GoSeigen wrote: GoSeigen wrote:
GoSeigen wrote:Quick update, as I'd covered my short puts earlier I reopened a short Nov slightly OTM put into yesterday's weakness. Just seemed more sensible than closing the calls with quite a bit of time value left and only a week to expiration.
Added a short Nov strangle. Silly prices for expiration in 3 trading days. Might regret it come Friday though
Expiration at 3600 or just below would be ideal.
Expiration last week was as good as could be hoped with the S&P opening around 3580 on Friday bringing a good chunk of profit. I still hold a net long Jun position with two straddles. I've written Dec strangles against these positions. I still feel the market is bullish: if we get a strong Santa rally the Jun positions will protect against big rises.
Sorry, no update in December after being tested positive for Covid, from which I've mostly recovered now. December expiration went well, with a decent profit on positions. However, I rolled my positions much more cautiously than previous months, partly due to being sick but also because of a general uneasiness which has now developed into a solid decision to change strategy.
Previously I have been happy to write options, earning money from the time value and (hopefully) falling implied volatility which I have noted has been at historically high levels. I was happy to do this because I was somewhat uncertain as to how the market would evolve, and indeed I have been pretty surprised. The S&P has risen fast and persistently, hitting new post-COVID highs and maintaining this momentum with regular new record highs. Its strength certainly justifies the premium on the VIX: calls were the way to go but options buyers had to pay up for them. OTOH the FTSE has surprised by remaining weak, only gaining positive momentum in recent weeks.
Since December I have reassessed and feel I have a solid new strategy which I have already been following.
-I have taken positions in long FTSE futures and short-put positions (a strongly bullish view) to add to my previous leveraged long position on UK stocks and hybrid securities.
-I will no longer write S&P straddles and strangles, instead taking a cautious watching remit with options and perhaps purchasing long-dated options as market moves dictate i.e. will buy puts after extended rises and buy calls on sharp falls. Given the still-high implied volatility this must be done cautiously over an extended period. If I note an inversion of the volatility term curve I will perhaps buy straddles again. Similarly, if contango rises strongly from it's current low levels I may restart the option writing.
-In the short term I'll try to increase exposure to bank equity and China/Emerging markets as conditions permit. Over time I will also seek opportunities to increase cash levels by taking profit on UK positions and increase my short exposure to the US.
These changes are prompted by the following observations:
1. I was wrong about VIX. It has not broken its rising trend and my view now is that it will remain elevated in a warning of bubble conditions.
2. The CBOE has updated its web pages and in the process screwed up its term structure data and chart page. I haven't an alternative source so this has removed a major data input to my option writing strategy and I'm no longer confident I can time it correctly.
3. The S&P has broken out to all-time highs; the FTSE has broken out of its consolidation. These events add too much risk to a short-options/short-vol strategy IMO, while at the same time allowing transition to the above alternative approach.
4. VIX contango has remained stubbornly low, making me nervous about a short vol strategy.
5. My view is that the US is entering bubble territory. This is a time to start thinking about more defensive positioning even as one's portfolio is looking in increasingly good shape. In our case we are now well up on last year's highs so I am conscious that I need to progressively rein in my bullish impulses.
6. All over I see signs of late-bull danger. Last year in Feb I called a secular bull. For the FTSE I think that is still possible, but equally we may see an extreme late-stake acceleration of prices which will be difficult to trade. The signs I am seeing are the long-awaited IPO frenzy with ISTM an increase in M&A, and insane movement in risky and obscure assets like Tesla, bitcoin and US small caps. Also this year has seen the first signs of a rotation from growth back to value -- or to be fair the first signs of bottoming of the previous trend. I'm already positioned towards value so not really concerned at what I'm seeing and I have to say, the way the market evolves might simply turn out to be a massive rotation rather than a crash of the entire market.
Sorry long post, but there were a few things to put in there. Given the change in strategy I'm not sure it would be appropriate to keep updating my posts here, so unless there is strong demand to the contrary I will make this my final update.