Lions and friends…
I want to take this opportunity to outline how to manage a swing trade in high volatility situations. I believe that recent events in the market present a great teaching opportunity!
As most of you know, I went short ticker SPY on Tuesday.
On both Tuesday and Wednesday the market dropped, and the position gained… THEN, today the SP500 made a strong reversal and the position went negative- that is volatility.
Much of today’s surge in stocks was, IMO, short covering. That is people who were short quickly decided to cover their position resulting in a market which put on much more gains than would normally be expected. This looked like “panic” short covering to me today- and when people panic in the market, they make poor choices. Moreover, this “panic” short covering allowed me to add to my position, which I did strongly, picking up more puts on the cheap.
I still believe that this market will fall over the next few weeks. I explained this to everyone AT THE ONSET when I opened the position (see my initial post bottom of the page).
This was not set up as a day trade, but a swing trade. A swing trade meaning, that I intend to hold the position for several weeks. Moreover, I bought these puts with an expiration WAY OUT in August, which allows me time to let the position play out.
With this trade I initially opened a relatively small position, only 18 contracts, which allowed me to add to the position IF I still feel that downside will come. I have currently built the position to 54 contracts.
Capital Reserves.
When you open a swing trade, you ALWAYS start with a small initial position and keep cash in reserve. You open with a small initial position looking for opportunities to build the position IF you still believe that you are on the right side- that is the trade will play out as you intended. (And this is exactly what I did today).
You also always buy options which expire out several months, to allow your trade time to work.
Even with all this, there is no guarantee that the trade will work however, if you play your swing trades similarly over time you will make money managing your position like this.
GM
Greg,
Been watching and reading about a year
This was the best and most actionable info so far, IMHO....
Love the macro perspectives you give but this was your best personal energy investment 🙏🏻
Yes, it was a relief rally in a long trend down. Gold is showing its dual nature here.