I did not intend to blog every other day. But waking up this morning I just have to. “Market crash ahead” is the headline today as Oil dropped 30% over night and circuit breakers had to be used to stop the fall of the SPY pre market. And I can’t wait for the markets to open to see how the portfolio is doing as volatility is The-Strangle’s best friend.
As written before, not owning stocks gives me peace of mind. With The-Strangle approach I am not suffering from random bad stock events. There are so many things that can hurt a stock like bad earnings, the CEO getting fired, pending law suits, a market melt down, the list is endless. As we only have strangles in our portfolio we are looking for big moves in both ways. Up or down, we do not care.
What will we do today
Well first of all we loaded up during the last week (see current portfolio) and we also unloaded some trades (some way too early). So we will sit back and watch very relaxed how our positions are doing.
All new entries will move this week: VXX (volatility just has to); banks like HSBC and Bank of America, USO (huge move expected) and the SPY for sure. But we might not sell any of our puts - instead we might sit tight and watch out of the window. As we switched to LEAPs recently we will stay calm as this might be just the beginning of the storm. In the past we sold too early to often because of looming expiration dates and scarcity. Do I have to mention Beyond Meat, the Volatility VXX or Exxon Mobile? They still break my investment heart. We sold all these for a good reasond and with a nice and sometime shefty profit - but way too early.
As all new positions are LEAPs (the VXX is the exception of the rule) we have way more time so we can relax a little. And we also plan to use another trick in the future. If a position is sitting on a huge profit like 200%, we will sell but we will only sell half of it. This way we lock in a nice profit just in case that the wind will turn against us. On the other side we leave the door open for further profits.
Chance to escape a loss
The current development might give us the chance to close a Put which would expire worthless otherwise. KBR - we sold the Calls quite a while ago with a nice profit but the Puts are wortless and will expire in March. So far the position is under water with 7 % but we might be able to sell the Puts this week and make an overall profit on that position.
We also hold a worthless put on EPRT expiring in April. This one might go this week as well. The strangle on EPRT shows a profit of 33% which will increase if we can get some Cents on the put now.
Oil - we have been there
I just loaded up on USO on Friday when Oil was dropping like a hot knife on butter. Why did I do that? Well normally the options on USO do not move a lot and you will lose everything over time. But the huge drop on Friday and the fight between OPEC and Russia reminded me on a similar development in 2009.
I have seen USO coming down from 120 $ to 22 $ in 2009 and it might drop huge again (btw I did not play USO way back then. I was just stunned by the move and the move burnt into my memory). We opened a LEAP which gives us enough time to make a profit if Oil drops to 20 $ or otherwise enough time to exit with a minimal loss (yes, many strangles lose money - this can not be avoided).
If Oil really reaches 20 $ than we will have a closer look on NBL and NOV. These two stocks might survive a crash but might get punished huge. So why don't we load on these now? Simple answer they are way too expensive now. Same is true for Boing. There are many stocks out there where we believe they get crushed or they might go to the sky. But unfortunately the prices have very high premiums and even if the stock makes huge moves we still might lose money. And losing money ist not our primary goal.
This will be a volatile day/week - one of the biggest in a long time.
Strangle - let's go!