The Calm Before the Storm?

The S&P 500 has managed to bounce around between 800 on the low end and 890 on the high end since I began trading February options in the second week of January.

Keeping my portfolio delta-neutral (via some assistance from hedging in SPY) has proven to be relatively uneventful. However, with February expiration a mere 11 days away, 11 open Feb positions, and the ticking time-bomb Federal Stimulus package winding its way through Washington.... these next 11 days may prove to be very interesting.

I don't know which way the market will move once the final stimulus package is decided on...but it'd be a safe bet to assume the market will blow out of it's current range. The delta-neutrality of my portfolio will surely go through a trying test.

As such, I am attempting to reduce risk. Up to this point, each day when I balance the neutrality of my portfolio, I've done so by selling a credit spread in SPY that provides the needed delta to get me back to zero. Today, instead of selling more spreads (and increasing my potential risk), I've begun to buy back "in-the-money" SPY spreads within my portfolio to achieve my delta repositioning.

By buying back spreads that are "in the money", I'm adhering to the principle of "buying intrinsic value and selling extrinsic value". It is smart for any professional options trader to adhere to this adage. In the long run, the statistics work in your favor. In the trading world, this is called EDGE. And no trader should trade without an edge - whether real or perceived. This realization has had a major effect on my trading.

Stay tuned over the next week or so. Should get interesting. Hopefully it doesn't....but if it does, here's hoping my portfolio is constructed as well as I think it is :)