≈ When one door closes, another opens. ≈
Yesterday we’ve witnessed the markets drowning in red candles. The virus outbreak in north Italy is dominating the news headlines all over the world. Although epidemiologists have concluded that the cases in China reached a peak somewhere between late January/early February, the patient zero is now said to date back as far as October last year. During that time, markets were trying to break their all-time highs and VIX the all-time lows. Investors didn’t see any risk, therefore, assumed that there was no risk. Nice.
When markets are shaken like this, traders get stopped out a lot. Long positions get burned and naked puts get ITM in the speed of light. Experienced Vega traders mock the rest of us.
You see, my dad once had an old Beetle. They were the most popular brand of vehicles in Brazil when I was a kid in the 80s. During the Venezuelization that took place in my country in the late 80s/early 90s—when inflation peaked 30,377%—, people could not afford to buy food, let alone new cars. Old Bugs were everywhere, like a coronavirus on four wheels.
My grandmother started to present some serious mental problems, and we ended up inheriting her old car since she could not drive it anymore. It was (still) a beautiful light-brown machine, but there was a slight problem to it: every time you tried to close one of the doors, the other opened.
— “See, son? That how life is. Every time you say no to something, you close one door and another is opened.”
So is the market. If the markets are too messy, stay on the sidelines. If your target is 70% net liq, make it 50%.
Just don’t stay there staring a closed door. Take the loss and move on to an opened one.
Chart of the Day
Pullback on the weekly
Markets were spooked yesterday but if you go to the weekly chart, the pullback gets more clear.
Video of the Day
What is Hedging
A hedge is a strategy to reduce the risk of adverse price movements in an asset. It can be used to minimize or offset the chance that your assets will lose value. It also limits your loss to a known amount if the asset indeed does lose value.
Today’s line up
Tales of a Technician
How I Played Microsoft Like a Fiddle
Two weeks ago, I spun a tale on one of the first tech stocks known to man – Microsoft (read it here). It concluded with a trio of trading thoughts on how to capitalize on Mister Softee’s delightful setup. The stock’s overbought posture, coupled with high IVR, was begging for one of my favorite strategies, the iron condor.
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show 8:30 PM EST
This is our weekly MasterMind group. Join the coaches tonight, 8:30pm EST to discuss the markets and help you prepare for the week.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
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