SPY: Overnight Black Swan Waiting Time?

Discussion in 'General Discussion' started by Ice101781, Apr 1, 2017.


How long do you think it will be before the next ~9%+ opening gap-down?

  1. 6 Months

    6 vote(s)
  2. 1 Year

    5 vote(s)
  3. 2 Years

    6 vote(s)
  4. 3 Years

    4 vote(s)
  5. 4 Years+

    10 vote(s)
  1. KiwiDon

    KiwiDon Well-Known Member

    Never a truer word, johnyoga ;)

    Indeed, this great investors letter*** from Artemis Capital hits the nail on the head, including a nice reminder about Hari Krishnan's "Second Leg Down" book:

    2nd leg down example.JPG
    artemis cover.JPG

    *** https://static1.squarespace.com/sta...s_Volatility+and+the+Alchemy+of+Risk_2017.pdf

    Also, this flowchart in the document johnyoga attached is very handy too:
    hedging schematic.JPG
    Last edited: Nov 17, 2017
    will, Frank_M and Trader G like this.
  2. KiwiDon

    KiwiDon Well-Known Member

    After last week's volatility, I thought I'd add an interesting article to last years discussions that I stumbled upon, written by a retired investment advisor (bought his first stock in 1958!!) that discusses hedging (see below).

    On another note, I'm not sure if anyone used the right hand "green box" shown above and had VIX options ahead of time....did they work out as planned?

    A lifetime of experience has told me that there is no really effective way to hedge actively against corrections or bear markets.
    To expand upon this point of view, I look at implications of a hedge posed by Mad Hedge Fund Trader, a pretty reasonable and simple one.

    The problem with hedges is their dependence upon timing and your opinion about when the market, even if overpriced, will correct. Taxes also don't help.
    A comparison with active hedging gives cash an advantage and more flexibility in the more likely scenarios, and increasing cash returns narrow the comparison with stocks.

    The only other alternative - especially for the young - is simply to buy and hold and ignore market events.

    The elevated valuation of the stock market has clearly caused many investors to consider finding a way to hedge their portfolios, and this interest in hedging will undoubtedly grow as investors look at the effect of the recent sell-off on their portfolios. Caution at the present moment is understandable - and a calculated caution is always a good idea - but is there really an effective way to hedge?

    source: https://seekingalpha.com/article/4143438-real-hedge-cash
  3. Jerryb351

    Jerryb351 Active Member

    Hedges are always a great idea. However, even if your teenie exploded with profit enough to keep your broken wing butterfly t+0 line above water , how much fun will it be trying to take that butterfly off for a reasonable price while the market is tanking and the fly is 80 points away ?
    PS I trade BWB’s , and I also think about this
  4. Trader G

    Trader G Well-Known Member

    The bid ask was ridiculous last week, pricing for my flies were all over the place. The teenie is there to brace for a gap down vol shock or market closing. I always have a back up plan for markets like last week which is essentially buying a vertical first and then a put (or multiple). Whether that is closing out a short leg of my fly or just buying a put or put spread. Anything more complicated than that is a nightmare to get filled.
    KiwiDon and Jerryb351 like this.
  5. Jerryb351

    Jerryb351 Active Member

    Were you able to do the above mentioned last week?
  6. Trader G

    Trader G Well-Known Member

    I got some verticals traded and did close out a small bwb (not at a good price), but pricing was all over the place.
    Jerryb351 likes this.
  7. Jerryb351

    Jerryb351 Active Member

    I see. Do you run teenies on all your BWB’s?
  8. Trader G

    Trader G Well-Known Member

    Just enough to keep my T+0 at an acceptable max loss level. I look at it as a whole not individual bwbs
  9. KiwiDon

    KiwiDon Well-Known Member

    It is always amazing to see how the price of the teenie explodes in a true vol spike.

    I watched an April standard expiry 2-delta SPX 2200 (!!) put move from approx $2.65 at 15:30 Thurs 1st all the way up to approx $25.60 near the close on Monday 5th. That's pretty useful asymmetric price behavior....similar to what Tom mentioned in last week's TG2.

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