Another month is in the books. And with that, I’m ready to roll out my fourth monthly retrospective. One thing I was reminded of last month is the reality of diversification. If your approach involves a dozen or so cash flow type strategies across a broad array of asset classes, you will always have something that runs amok. Maybe your naked puts in stocks are rockin’ while commodities are droppin’. Or maybe bonds are creating the drama. It’s very rare to have everything firing on all cylinders. And last month was no exception. As usual, some of my gains were stolen by the few positions that acted up.
As a reminder, these monthly retrospectives fall into four categories – the monthly theme, what I did right, what I did wrong, and my trade of the month.
Rising Rates, what Rising Rates?
Perhaps the most dominant theme last month was the sharp turnabout in interest rates. The short bond/long rates trade has been money for many, many moons. But last month, bond bears finally received their comeuppance. Interest rates got smoked driving TLT higher by 7.3% from March 13th to April 18th. And if 7.3% doesn’t sound like much, I would remind you we’re talking about bonds here, not Tesla. Trust me – 7% in a month is a substantial pop.
I took a bath on a slate of TLT bear call spreads. But, hey, it happens. In hindsight, I should have been a bit quicker to pivot.
What I Did Right (aka why my mommy should be proud)
The modifications made to my XLF positions worked swell this month. Last month when financials tumbled, I rolled April short puts into May for XLF and a few other bank stocks. The gambit worked, and with the sector stabilizing, profits have returned. It’s a good reinforcement of the benefits of rolling tested positions into the next month. By pushing my puts forward, I was able to collect when the market winds finally shifted back in my favor.
What I Did Wrong (aka my last vestiges of stupidity)
It’s important to avoid conflating a losing trade with doing something wrong. You can follow your plan perfectly and still lose. When I think about misbehavior, I’m thinking more on areas where emotions entered the equation. Because part of my trading plan is discretionary (such as when to exit hedges), there’s always a bit of guesswork involved. Sometimes I’m spot on, other times I’m not. We often equate losses with bad behavior, and that can be dangerous.
One misstep from the month was not exiting volatility crush trades directly after an event (such as earnings). I played the French elections with condors and strangles on FEZ/FXE and would have banked more coin if I bailed the morning after.
The cleanest type of management for these strategies is a swift exit following the event. Had I done that my purse would be a few shekels heavier.
Trade of the Month
Once again my feathered friend ruled the roost. With the Russell 2000 rising a mere 1.1% last month, delta neutral trades like my beloved Condor thrived. Small-caps are putting together one heck of a sideways streak. Perhaps it’s trying to make up for the nasty post-election rally last November that killed Condors left and right. Indeed, the only way wide Iron Condor sellers like myself could have sabotaged themselves during this streak was simply by not participating.
On a side note, I did add extra bull put spreads for my June Condor when the RUT popped last week, but given the magnitude of the pullback this week I bailed at a small profit. If there’s one thing I’ve learned over the years, it’s to avoid taking losses on hedges unnecessarily.
Check out the entire 2017 retrospective series:
- The January that was
- The February that was
- The March that was
- The April that was
- The May that was
- The June that was
- The July that was
- The August that was
- The September that was
- The October that was
- The November that was
- The December that was
Financial freedom is a journey
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