As I mentioned in the previous post, this was an ugly month. The market broke out of its recent range in a decidedly bearish way. Make no mistake about it, The stock market hates the stimulus plan and President Pork Sandwich's plan for inflating the US out of the doldrums.
The bearish breakdown in the market killed my short put verticals. Most notably, I am caught in positions in WFC (a bank), GENZ, AMGN, and UNH (healthcare related) which are getting killed every time Obama opens his mouth.
Hopefully, these losing positions which will be rolled over will be next month's (or the month after that) gains. Only time will tell.
In the meantime, while still adhering to the same overall trading strategy, I've changed the way it's implemented.
Previously, while attempting to construct a portfolio of short spreads to collected time premium, I was entering verticals in various stocks, while attempting to stay as close to delta neutral as possible. And to manage these multiple positions, I beta-weighted the portfolio against SPY. My profit curve took a similar shape to the profile of a cross between a short Iron Condor and a long Butterfly.
Well, besides the profit downside this past month, what I really learned is what it's like to be a Fireman. With between 15-20 different spread positions on at one time, when the market decides to go hard in one direction (in this case, down)... all of a sudden you have multiple positions running against you at the same time that need to be closely monitored and regularly adjusted. I felt like a fireman constantly putting out small fires all over the place.
This led me to change the means by which I aim to achieve the same result: instead of constructing a portfolio of various short vertical spreads, I can much more efficiently achieve similar results by selling Iron Condors on SPY. The SPY is very liquid and therefore I can trade in and out of relatively easily. By selling ICs beyond one standard deviation out at various points as the market moves, it seems to be a less stressful way to achieve similar results - with less risk. Besides, it'll be easier to manage.
I will be exploring taking this one step further beginning with April expiration. When I begin trading April options (in about a week), I will begin trading Double Diagonals (short near month, long back month) in an effort to establish Iron Condors with better risk/reward and hedge against Vega risk.
Let's see if we can turn this ship around and get back on track. I'm mildy confident that within two months, I will have weathered this storm and recouped a majority of losses on current open positions, and then be able to strictly focus on trading double diagonals in SPY.
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