Yesterday, Â I sold my Put options on Nvidia (NVDA) and Apple (AAPL) with gains of around 100% in each since I added them to my Volatility Portfolio (on my subscription JugglingwithKnives.com and JubakAM.com sites) on March 10. I’d bought those Puts in order to make some money from the falling prices of those stocks and the market in general.
As I read the market tea leaves yesterday morning, stocks were likely to rally in the days ahead as the Senate passed the House of Representatives’ first coronavirus relief bill and took up a much bigger $1.2 trillion bill that included such things as a $1,000 or $2,000 check to each American and $300 billion in aid for small businesses. I didn’t want to hold those negative bets on a further decline in Apple and Nvidia shares in the face of that “good” news.
But instead today, March 18, I got a huge sell off in U.S. stocks. The Dow Jones Industrial Average opened down 1,300 some points. The Standard & Poor’s 500 index was down by as much as 9.78% as of 2:30 p.m. New York time before rallying at the end of the trading session to a closing loss of “just” 5.18%. So my sells on those Puts yesterday wound up leaving money on the table.
I’m okay with that.
It’s hard to get inside the market’s collective head right now much further than to say that investors and traders are hearing bad news. And hearing it at such volume that it drowns out any good news–especially if the good news is a little bit delayed or a few days down the road.
This morning U.S. stocks didn’t have much of a chance as the New York market opened to a wave of bad news and lower prices out of Europe. The scariest news was out of Italy, as it has been for the last few weeks. The country saw its death toll spike by 475 in a day, the highest daily increase anywhere during the pandemic. The death toll in the United States passed the symbolic 100 level.
Markets also had to cope with Treasury Secretary Steve Mnuchin’s  evidence to Congress that if the legislature did nothing, unemployment could hit 20%. The United Nation’s labor watchdog the International Labour Organization warned that up to 25 million jobs could be lost worldwide. Standard & Poor’s warned that a recession–two quarters of below-trend growth–was guaranteed in the Asia Pacific region in 2020. (Note that’s a different definition of “recession” than the usual one of two consecutive quarters of negative growth. S&P is still looking for positive growth in the area (which includes China) but of less than 3% in 2020.)
Add in the plunge in oil prices today of nearly 18% for U.S.benchmark crude to $22.17 a barrel and the Senate’s delay on voting not the House bill or taking up its own coronavirus relief legislation, and stocks didn’t have a chance in this day’s trading.
That’s the way it is in a bear. The moves are big both up and down and they’re hard to call.
As a consequence, I suggest that you limit the frequency of your trading and try to buy and sell when the market sentiment–as volatile and hard to read as it is–is clearly in your favor. That means not buying Puts or going short when the market has just plunged. Yes, the retreat could continue tomorrow but the odds of a dead-cat bounce are extremely high. And it means not going long–for a short-term trade since I think this market is still headed lower–on a big move to the upside with the hope that it will continue for another day or two.
Look for high probability trades either upside or downside. Patience here is an important virtue.
As an example of that, I was going to buy new Puts in my Volatility Portfolio after any good news rally. I’m holding off on buying Puts into a big drop like this. I’ll wait for the next bounce.
