Trading Epic Fury (Part 8)

Today I want to tie up a couple loose ends from Part 5.

Having been that way for three weeks, I expected the rangebound market to continue on Friday but EOD had us at multi-month lows on SPX (and under the 200-SMA) and multi-month highs on VIX.

Going back to the first bullet point in Part 5, volatility can indeed continue to climb and go much higher. During the COVID-19 Pandemic (March 2020), VIX hit its all-time record closing high of 82.7. During the Global Financial Crisis, VIX reached its all-time intraday high of 89.5 in Oct 2008. In Nov 2008, VIX recorded a closing high of 80.9 on the 20th.

Despite these harrowing numbers, my personal break point would be much closer because the mental toll levied by days like Friday is real. I was scurring about like the proverbial chicken with its head cut off to check relevant charts, to determine what contracts to close/adjust, and to work trades by 4:00 PM not to mention recording everything on my spreadsheets. I even made a trading error that cost me dearly [review to determine how better to utilize the confirmation screen]. When it’s all over, I close my eyes and take some deep breaths. I sometimes stare at the screen for several minutes and zone out. The short-term stress of losing big money has a cumulative effect. A couple more may have me ready to throw in the towel: usually at the worst possible time landing me with catastrophic loss (third-to-last paragraph here and third paragraph here).

Trading as a psychological game is a whole separate topic but I’ve listed a few things that affected me Friday and caused some poor decision making: high position delta, big losses, big market moves, and multi-month extreme market levels.

A couple supportive factors were available, though. I discussed in Part 6 how Friday’s volatility Friday wasn’t actually too bad. Realizing that may have helped to calm me a bit. Also, while known as a key psychological indicator the 200-SMA is historically a long-term bullish signal: something else to realize for the sake of remaining calm.

Big picture goal may be to protect myself when volatility is high by staying closer to delta neutral as discussed in the Part 7 penultimate paragraph.

Despite discussion about needing to exit and to continue reducing downside exposure [i.e. Part 7 paragraph 4 and (1)], I did open a couple puts last week. These puts are closer-dated to take advantage of VIX backwardation (IV and DTE inversely proportional), which I think at least makes good logical sense.