The day started off so gloriously. I settle into my office chair at 7 AM and watch as the futures slowly fade. Then the precious metals all take a shit just after 8. The energy was palpable.
The market opens, and right away it’s pretty obvious that the early trend in stocks is downward. As I leisurely alt-tab between my real work and the stock market, prices, almost instantaneously, levitate to where they opened.
Beads of sweat form on my brow.
I likely release several curses under my breath.
Now I am completely distracted.
Fuck me.
FUCK ME.
I capitulate.
At 10:00 am, I was nearly break even. I close the trade ($QQQ puts) in the next half hour for a gut-wrenching loss.
Some lessons: I entered the trade too early. After yesterday I thought it looked like a really nice short setup…and in theory, it probably was. What we are seeing in this thin tape is that optimistic/threatening comments by our idiot elected officials can alter the course of the market VERY quickly.
Like I said, all indications were pointing toward short-term downward momentum at the open. The jump from the lows to ‘break-even’ (where the market opened) on the day took all of 20 minutes.
Even in defeat, I made the correct decision. The market strength was undeniable…for the second time this week, bulls took control and plowed higher. I was skeptical on Monday, but after a second time, I’m flexible and experienced enough to know when to step aside.
After a brief period of despondency (and a cheeseburger), I needed to find something to trade. After a big loss, the common reaction is to get it all back (AND MORE ) as soon as possible. Having fallen into this trap many times in the past, I knew that I needed to do the opposite and find a small, well thought out trade.
I ran a screen earlier in the day and $UVXY just happened to come up. Have you ever taken a look at the fucking weekly $UXVY chart? No? Well, here it is:
Honestly…what the fuck is that shit?
After seeing this, I knew that one of my new priorities is to develop a $VXX (more liquidity, better spreads, similar horrendous performance) put option trading strategy. I was having a tough time finding individual stocks to buy, so I just decided to buy a small put position in the $VXX weeklies, going for the 30.5’s(which was the nearest ITM strike), getting in at 0.78…this was around 2:30. By the close the bid had appreciated to nearly 1.20.
Everyone always talks about how “retarded” these instruments are…and that’s no joke. Trading these on the long side is really idiotic (I can speak from personal experience), but if you were to flip that $UVXY chart upside down, you would have the greatest momentum play in the history of the stock exchange.
Like I had mentioned earlier, a new goal of mine is to try and exploit (and profit from) this horseshit. More to come.
My best to you all.
-EM
To infinity…AND BEYOND:
http://youtu.be/JkQFVQTJ28Y
