Markets change seasons like the weather; clearly we’re in a different type of market “character” than we were a year ago. And just like how you have to wear different clothing in the different seasons of weather (flip-flops in January is a risk), you need to be able to match your strategies to match the current Market.
So what is the weather like today in the Market? Even after dropping 100 points off of the recent highs on the S&P500, the character has not changed…yet. We’re still seeing “quiet/trending” behavior with relatively docile intraday volatility, and very low IMPLIED volatility.
Because of this, we generally want to establish a LONG VEGA position. Is this a reference to a really bad Chevrolet from the 1970’s? Nope…”vega” means the sensitivity to changes in implied volatility. With implied volatility being low, the odds favor it RISING at some point, so we want to be trading positions that gain value if implied volatility rises.
This is why we’re trading time spreads like Campaign Diagonals right now. In fact, we’ve been trading them since late August, and it’s been our simplest, most successful strategy in the live trading room since that point. The other thing that I like about them is the “don’t care” mentality towards day-to-day price movement. I really don’t care what happens overnight, because the position is self-hedged to a degree, whether the price goes up or down. So no more worrying about an overnight black swan event.
Now certainly, if this little pullback turns into a bigger one and we see implied volatility spiking again, we’ll look to place SHORT VEGA trades like iron condors and credit spreads. Until that point, the weather is just fine for our campaign diagonals!
Make sure that you’re adjusting your strategies to work with the current market.
In your corner……..Doc Severson
If you are interested in learning more about these strategies, Go LIVE with Doc every day trading them in the 12 Minute Trading Live Trading Room or Get the Campaign Cashflow Masterclass!
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