MU (77/112)
NKE (74/103)


EWZ (91/132)
USO (89/210)
XLU (84/76)
GDXJ (82/141)
XLE (77/109)
EWW (76/105)
SMH (73/105)
TLT (71/47)
XOP (63/154)
SLV (73/79)
GLD (63/37)
FXI (61/63)
GDX (57/106)


IWM (76/71)
EEM (74/73)
SPY (73/66)
QQQ (73/60)
EFA (54/53)


VIX: 66.04
/VX APRIL: 62.00
/VX MAY: 56.95
/VX JUNE: 49.95


On Margin:

As you can see by the chart showing the top five or so exchange-traded funds having the highest implied volatility ranks, this is largely a closely correlated sell-off. Because of this, I'm somewhat hesitant to pile into a bunch of nondirectional stuff simultaneously, if at all. If we get relief from the selling, these very same instruments could whip back to the call side in closely correlated fashion, leaving me with a bunch of tested call side; whereas now I'm just put side tested (and how). Naturally, this means I have to put up with being far more directional than I would ordinarily be, but these things happen and being patient and mechanical with how you manage current positions will be more productive in the long-term than going bonkers here and bailing out of everything in panic.

Unfortunately, this likely means that I will be taking on far more shares of stock than I ordinarily like to hold on margin and then reducing cost basis over time via covered call. I'm always prepared for that, but being in stock on margin isn't buying power efficient, although you always have to plan somewhat for that possibility and go with the flow if taking on shares is really the best way to work yourself out of the trade.

In The IRA:

As pure luck would have it, leaving my SPY position monied throughout this nonsense (as well as erecting some additional call diagonals at market highs as delta cutters) has served me well. This wasn't particularly prescient or a stroke of genius; I was just doing what I felt I had to do to protect the largest element of my retirement portfolio at a point at which it made the most sense to do that and nothing else. Anyone else who did that and got lucky isn't a guru. No one saw this crap coming, and if they're saying they're a genius, well, I say you're free to call bullshit.

Is this an opportunity to pick up things on your shopping list? Maybe. I've taken this opportunity to ladder some out-of-the-money short puts out in a few things that I've had on that list for ages -- XLU , IYR , EFA , and HYG ; all dividend generators which have been just far too pricey to deploy the frustratingly large bit of dry powder I've had sitting on the sidelines for ages as the market inexplicably ground up to more and more ridiculous valuations. Will I get in at the best possible prices? The jury's out. I will be getting in far lower than at the market highs we saw just a few weeks ago (assuming price stays below the rungs of my ladders) and won't let anyone talk me out of the proposition that lower is always better in your retirement account even if I don't hit the lows perfectly.

The basic strategy here, after all, isn't largely about share price; it's about assembling a portfolio that will pay out dividends regardless of growth and in which you can reduce cost basis over time via short call. It's three-legged: dividends, short call premium, and (if it happens) growth. If the grand arc of time has taught us anything, it's that growth may be an "average given" over the entire life of the market, but may not be over shorter time frames.


Im from Brazil and wanting to enter in the atmosphere of EWZ...forgive my ignorance, but what are all those lines? How do I learn that?
@T_P, At the time, they were the charts of the top four exchange-traded funds ordered by implied volatility rank. You can add the graphs of instruments on top of one another by selecting "Compare" from the tool bar and then entering the symbol of the stock to which you wish to compare. It will then overlay one stock's chart over another for comparison purposes.
Great insight! Thanks for dwelling into your thought process. Flight to cash and fund share redemptions causing the correlation. Wonder how long it will last, and if the worst is yet to come. How many hedgefunds will blow up... Growth outperformed value in the last decade, this can change soon.
NaughtyPines step_ahead_ofthemarket
@step_ahead_ofthemarket, It's always tough. If you went on really conservative broad market valuation alone, one would probably wait this dip out and wait for bigger, but no one's getting younger here. Lol. Next couple quarters' earnings are likely to suck in a "few" sectors (oil/gas, travel-related, hospitality, etc.).
+1 Reply
@NaughtyPines, I agree. The next 2 quarters should be massacres. Eventually some recover second half of 2020, even this is very dependant on the geopolitical outcome. Don't think 2021 will be any better, even if we get a vaccine by then. A recession is inevitable, can't avoid it.
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