What a crazy day!
It was fun because we were on top of things, not trusting the rally in the morning, grabbing some GOOG puts, taking a nice GOOG spread… By 10:15 I was already warning that the financials were failing us (always know what to watch) as oil bounced (public enemy #1) and that was followed at 10:46 by Khaannn's very good observation that the VIX was up, which I noted was a bad sign. GS collapsed around the same time and that was all she wrote for our little "rally."
Hopefully I didn't screw up by getting a little bullish as we held 11,150 in the afternoon. I saw a continued financial panic and a commodity sell-off taking down the market – THAT'S WHAT WE WANT! Well, we're actually done wanting the financials to go down but commodities must die. We were looking for rotation out of those groups since last summer and we sure got a rotation out of financials but ALL that money went into commodities so now we have ONE market leader that needs to give it up so the rest of the market can go forward.
So I made some good calls, blah, blah… More importantly, we should talk about your virtual portfolios and what you are doing with them. I closed a lot of profitable positions on Friday but I think a lot of people miss the point that those are short calls and puts we SOLD to other people who PAID US crazy premiums to take short-term risks because they think they are smarter than the market. DON'T BE THOSE PEOPLE!!!
90% of the capital of our virtual portfolios that is in play is in long positions against which we SELL shorter positions. We do have a couple of virtual portfolios where we try to beat the market by being clever: The $25KP is getting KILLED in this market and the $10KP is lucky to be back to cash. Our Day Trade Virtual Portfolio is doing very well but you all know what a wimp I am about them, it's mainly a series of 20% quick gains we've been grabbing off the table, much like Optrader's Swing Trading Virtual Portfolio – this is the kind of strategy that does work in a horrible market like this.
We set up the Day Trading Virtual Portfolio BECAUSE we had a $100K Virtual Portfolio that was going nowhere early in the year and, at the time I said that this was no market for pursuing short spreads and middling directional plays and it still isn't. Even though our LTP is down over 20% in the past month, I still think that is the single best place to put capital, followed, sadly, by day trading – which is too dangerous for most.
As tempting as it may be, trying to guess a bottom to the market is a very dangerous thing. JB asked me about rolling FRE down yesterday from the $17.50s and my answer to him was "You can sell the $12.50s for $1.85 and those can be rolled to the Aug $15s even so why not let them pay for you to roll down to the Jan $12.50s?" This is a good thought for all of our longer positions – don't try to win, try to survive. Yes one of our callers will "burn" us on the turn but if that turn doesn't come until October, then who cares? You need to stop empathizing with your short caller – stop looking at every bottom like it's going to be a turning point and start being realistic about covering your positions if this market doesn't turn back up this week.
I warned last week that if you let yourself go down 30% in your virtual portfolio you need to gain 42% just to get even. That's a pretty big hole! Chances are if you start taking big risks trying to get even, you will lose more. I know, I've done it! I wish there were a bunch of sure things we could all bet on (other than AAPL) but the ONLY REALLY sure thing in this market is that the premium you sell to your callers and putter WILL go down to ZERO on expiration day so, please, SELL THE PREMIUMS, SELL THE PREMIUMS, SELL THE PREMIUMS.
Don't forget to sell the premiums!
