Trading Epic Fury (Part 9)

The previous adjustments detailed at bottom of Part 7 proved unfortunate.

Trading on the final day of Q1 (one week ago) brings the following for SPX and VIX, respectively (circled candles):

SPX rallies 2.9% and VIX falls 5.3 points (~17.5%). I lost 2.4% for a daily relative return of -5.3%. That hurts.

Going back to Part 7, (3) really did me in. Before checking the market on March 31 near EOD, I shuddered in thinking about -100 x number of short calls being my total potential upside delta exposure as described in paragraph 3 [albeit there talking about downside exposure]. The last thing I anticipated was a huge rally just then but “last-thing-I-expected” events happening on an all-too-frequent basis are one thing that make trading difficult.

With the dramatic increase in calls, my hope was for them to be gone within a couple trading days. Once again, I violated this final indicator. Hope is not a strategy. Once I begin hoping then I seriously open myself up to disaster.

It’s sometimes very difficult to walk away from big losses like the -3.1% discussed here. Failing to do so risks revenge trading. I will save that topic for another day, but this was a perfect illustration [and suggestive of another useful addition to the incident report checklist: “am I susceptible to revenge trading today?”].

I ignored a few different red flags in doubling short call exposure on March 30.

The first red flag was a doubling of gamma to levels previous unseen (in the brief month that I have so far been tracking daily greeks). This was necessary to cut position delta and restore TD to triple digits thereby leaving me able to sleep at night [selling more to get negative delta as suggested in Part 7 last paragraph then the day could have absolutely been a knockout blow]. It just doesn’t seem like a great solution especially in retrospect.

The second red flag was an oversold market. SPX RSI(2) < 10, RSI(4) < 10, and SPX price < lower BB for two consecutive days. Technical analysis is no guarantee [and recall the Keynes quote from Part 5 paragraph 3] but eventually one is really “tempting fate.” It’s known that some of the biggest up days in stock market history occur during sharp downturns or bear markets [but we’re not technically in a bear market so moving on]…

A third red flag was March 31. Final days of March are frequently bullish—per Google AI—and often driven by quarter-end portfolio rebalancing and window dressing. March is seasonally weak but final days can see a relief rally as funds adjust positions to reflect better performance for the end of the first quarter. “Window dressing” pertains to institutional portfolio managers buying (selling) top- (under-) performing stocks on the last day of the quarter to make holdings appear more robust in subsequent reports. Also with March weak, the 31st can see a surge due to short covering (investors covering bearish bets).

I will continue next time.

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.

Trading Epic Fury (Part 7)

Today I will continue the Part 6 discussion about last Friday and my current plan moving forward.

I wrote about a potential put-rolling campaign and how it violates the last incident report indicator on hope. To say “I hope I can outlast the market” does not always work and is the basis of the John Maynard Keynes quote from Part 5 paragraph 3.

Rolling alone will not cut position delta: the main culprit of Friday’s big losses [as discussed in Part 6]. While I have already rolled some puts ITM at expiration, as a whole they are tending toward [deeper] ITM. That means longer delta, lower theta, and Friday’s halving of TD. Worst-case scenario as DTE evaporates is a position delta of 100 x number of contracts with little call offset because selling 1 DTE means gone in 24 hours. Ever heard of “picking up pennies in front of a steamroller?”

Most of what I’ve discussed so far suggests I need to look for an opportunity to exit ASAP.

Volatility, the silent killer, actually bodes well for me. In addition to positive delta resulting in losses late last week, VIX up 5+ points cost me over 1% in negative vega. Volatility has always been mean-reverting and I think it safe to say “this soon shall pass.” For the moment lost “vega capital” lies in escrow as higher theta that will decay over coming days unless volatility continues to go up and up. Be careful not to make rash decisions on NLV alone when some contribution is due to volatility expansion that will eventually come back to earth.†

I was pleasantly surprised in checking the market yesterday around 3:25 EDT. The underlying was down another 45 points: bad. Volatility was down fractionally—good—but still near year-to-date highs: bad. Position delta had doubled from Friday: very bad and suddenly scary! Despite all this, NLV was up about 0.5%.

Rather than shut everything down, my daily trade adjustments were to:

1. Close one ITM put.
2. Roll one ITM put down (still ITM) and out one week.
3. Sell twice as many calls as previous—half each 2 DTE and 1 DTE.

Continuing to repeat (1) on such days [operational definition required] will shrink exposure to zero within a couple months.

(2) will help to avoid DITM puts with little theta that require lots of short calls to offset delta (certainly not preferred).

(3) cut position delta ~50% from previous trading EOD. It leaves PMR to the upside (somewhat alarming) but I’m not actually worried about a sustained bull rally until Epic Fury is essentially over and from what I see/read on a [no more than twice] daily basis, that certainly is not happening yet. In addition, they will expire quickly.

There’s a discussion to be had about getting negative position deltas. Perhaps I will pick up there next time.

† — Penultimate bullet point from the above-linked incident report is what it is without
       volatility consideration. Maybe a longer deliberation into that is warranted.

Trading Epic Fury (Part 6)

Today I will discuss why the last two trading days (Thursday and Friday) are exactly what I did not want to see, pros and cons, and future directions.

In the second paragraph of Part 4, I mentioned the rangebound market in spite of Epic Fury. Then we get two straight 100+ down days for the S&P 500:

The market is trending lower as an orderly decline until the last trading day that breaches the lower [Bollinger] band of the channel. The feeling from this day is more like falling out of bed and hitting the floor because the second-to-last incident report [bullet point] indicator (also mentioned in the final Part 4 paragraph) just triggered.

Volatility (VIX) looks as follows:

Although shocking to see VIX up 3+ points on the day (after being up 2.5 points on Thursday: both circled), it doesn’t really meet the Part 3 criteria of a strong close because it’s not far greater than anything over the past weeks/months. It’s higher than the previous high on Mar 6 (arrow) but not by a lot.

Despite feeling like I have a black eye from losing 3.1% in one day, I have some things to feel good about:

1. Lost 1.1% for the week whereas SPX lost 2.1%.
2. Still very close to equity ATH whereas SPX is roughly 9% lower.
3. RSI is now overbought for VIX and oversold for SPX, which suggests near-term relief rally (not guaranteed!).
4. Decreased downside exposure Friday by closing one put contract.
5. Revisiting penultimate paragraph of Part 4, TD is still over 30.

I have plenty to be concerned about, however. Despite (5), the black eye has much to do with high positive delta. SPX falling 100 points can be tolerated when starting near delta neutral (4-digit TD on Wednesday). Otherwise, look out below and Friday began with the highest Epic Fury position delta thus far. Despite rolling calls down and even selling a couple more, I left myself with delta basically unchanged from Thursday, with TD halved, and with higher gamma: sounds like something of a fail.

Another concern is that (4) may not be as good as advertised. I started thinking a week ago that I could enter into a put-rolling campaign if necessary because the decline is likely to be time-limited. Along with (3), this represents blatant triggering of the above-linked incicent report’s final indicator. Recall John Maynard Keynes’ quote from Part 5 paragraph 3. Furthermore, while PMR is currently < 50% NLV, that can skyrocket in a heartbeat if the market continues [accelerates] lower.

Things to start tracking on a daily basis include:

• Number of open contracts at EOD.
• Weighted average DTE even though gamma may be a decent proxy.
• Daily SD move (for sake of first bullet point indicator in the above-linked incident report).

I will continue next time.

Trading Epic Fury (Part 5)

Upon Part 4 completion discussing things that haven’t happened, they suddenly do. Let’s talk about the damage.

Equities continued their selloff on Friday with SPX down over 100 points and VIX spiking to 28. In Part 4, I discuss this second-to-last indicator (bullet point). Friday then delivers my biggest daily loss in about six weeks along with full VIX term structure backwardation (just after mentioning it wasn’t). Despite these triggers and underperforming the benchmark, I outperformed for the week (roughly +1.5% versus -1.0%) and am within my recent NLV range. For these reasons I maintained status quo.

I may now be in violation of the incident report guidelines. Part of the challenge is that I seem so much better positioned now than in the past when I’ve been fresh off catastrophic loss. As I’ve mentioned: PMR is relatively low, total contract size is low, TD is healthy, and delta neutral is not far away. John Maynard Keynes is attributed to having said “the market can remain irrational longer than you can remain solvent.” I need to keep this in mind because even though short-term mean reversion usually occurs, nobody knows when.

In support of “do something now!” is my large daily loss just posted. If it happens once then it can happen again.

Hurting on Friday was my Part 2 implicit guideline to trade only near the close. On a market trend day, I will get hurt waiting until the close and Friday was one such day where most of the day I lost due to positive delta. Do not be deceived: despite my EOD greeks looking fine, until those trade adjustments they looked worse and contributed to losses. Avoiding intraday trading can prevent whipsaws on choppy days, however.

While either approach has its pros and cons, unverified data per Google AI is consistent with what I’ve anecdotally heard discussed for years. Choppy days have accounted for at least 60% in 11 of 26 years available since 2000. On the whole, delaying trade until EOD seems like a better setup for success.

I don’t feel overly concerned given my current greeks and position size, but reasons to ditch the rose-colored glasses include:

• Keyes’ quote suggesting volatility can continue to go higher and higher accompanied by the market sinking lower and lower: losses can be catastrophic.
• Discomfort because while greeks remain in check, I now have ITM puts when I try to keep them > 100 points OTM.
• The final bullet point from the above-linked incident report is currently fulfilled because I really hope not to see a consecutive repeat of Friday. Hoping is really not a great sign.

Trading Epic Fury (Part 4)

I concluded Part 3 by saying Feb 5 does not trigger the second indicator (bullet point) here after stating in Part 2 that Mar 6 is also negative. The way Epic Fury has gone for me thus far, though, even a positive trigger leaves me with little to do.

Over the preceding weeks, VIX has been around 22-24 rather than the 14-17 seen during quiescent market periods over the last few years. Given constant position size, higher volatility means more extrinsic value and more negative vega. To be hurt by volatility spikes, VIX needs to spike higher and trade much higher than it did a few months ago. This can certainly happen—we’ve seen VIX as high as mid-80s over the last 10 years! It won’t happen with the market rangebound, though. We’ll see what happens next.

Over 90% of my portfolio has now turned over with an average VIX of 22-24. Volatility contraction to the previous 14-17 will benefit me. Volatility acceleration will hurt, but even a 10-point spike would probably cost less than 5% of my NLV. Other things [i.e. delta, gamma] could hurt more than volatility.

Since trading shorter-dated options and collecting less premium, I have been watching closely and letting contracts expire worthless. I shouldn’t really be doing this but in my defense, last Thursday I closed three different tranches of monthly (AM expiry) options despite being far OTM. In wartime, I wouldn’t be surprised by any big move and did not want to risk some of those contracts settling ITM. Kudos to me for keeping a cleaner kitchen.

In general for the Weeklys, nothing to date has been close at expiration partly because I have been gradually allowing total put contract size to decrease. My PMR is less than 50% NLV and that provides me with substantial flexibility. I’ve tried not to add more downside contracts but now three weeks in, I will as needed to keep theta high alongside TD.

Keeping TD high brings me back to the last paragraph of Part 1: selling more [short-dated] calls. As a result, I usually maintain 50-70 SPX points away from delta-neutral after daily trades. On market down days, I have at times sold more calls but with the gradual decrease, I will start to replace with fresh puts to offset the calls. If backwardation worsens then I will consider further decreasing risk by not replacing expired puts and selling fewer calls as well.

Another thing to watch for is the second-to-last bullet point here. That just hasn’t happened so far due to the other tweaks discussed. Along with my current PMR and knowledge that the lion’s share of my portfolio is now “snow tire equipped” (positions open at VIX 22-24 rather than 14-17) provides me with a great amount of mental fortitude and confidence in trading from one day to the next.

Trading Epic Fury (Part 2)

Today I continue from the third paragraph of Part 1 to review the charts on what Epic Fury has done to the markets.

I spoke with a friend yesterday whose portfolio is down substantially year-to-date. She spoke about how the markets have been so unpredictable since the war began. “Today is the first time in a month that we have had back-to-back up days,” she said. “The market will often be down 1,000 points, etc… my calls are way under water.”

Looking at a daily chart of SPX (S&P 500 cash index) since last trading day of Jan (30th), most of what she said is not true:

The index is down from roughly 6920 to 6720 in that time or (6720 – 6920) / 6920 * 100% = 2.9%. Bear market is a 20% decline while a “market correction” is often said to be a 10% decline. So far, 2.9% is very little.

For my friend’s Jan ’27 long calls, any decline is bad. With six weeks amounting to 13% of the remaining time to expiration (Jan 15), pain from time decay will be noticeable. Her feelings about the market may be colored by the unrealized loss.

Here’s a daily chart of volatility (VIX) since Epic Fury begins:

Leftmost bar is Mar 2. VIX increases a small amount from ~21.8 to 22.5 over the period. Mar 6 (arrow) is the biggest advance with a VIX close near 30 (SPX ~6740). The following day, VIX opens near 35 but closes near 25. This [and second arrow in top chart] is a very wide-ranging day [(~6640 to 6800 close on SPX—first arrow in top chart—on a day when ATR(14) actually tops out year-to-date], but trading just near the close (one of my implicit guidelines) has prevented potential whipsaws from the large intraday ranges.

To see if I have violated this second bullet point, I need to zoom out for a longer look at VIX. The following is daily YTD:

A gradual increase before Epic Fury is evident by the rising 20-SMA (blue line) since Jan 19. The first arrow on Feb 5 is the highest VIX close before Epic Fury. None of the first four trading days after the operation begins (circled) are large, strong, multi-week (or month) highs exceeding Feb 5. The first three candles are down days [first big, second huge upside wick suggesting volatility rejection, third like the first with close far below the open], and the fourth closes lower than the previous three opens. Mar 6 (second arrow) would be the day to “do something” except there’s really nothing to do.

Next time, I will explain why that is.

Trading Epic Fury (Part 1)

Year-to-date, 2026 has been quite a surprise for me. While I won’t talk about performance just yet [first need to review the past few years to catch up from here], I can discuss my trading strategy especially with regard to the incident report I finally got around to posting.

With Operation Epic Fury beginning in the early hours of Feb 28 (all dates 2026 unless otherwise specified), the first real signs of backwardation occur on Mar 3. VIX is already somewhat elevated (20.10 compared to 14-17) the Friday before Epic Fury. Monday, Mar 2, sees spot VIX at 21.22 and moving into the term-structure range (higher than the front two months and lower than the rest). On Tuesday, spot VIX hits 22.80 and is higher than all but the last two months with the first three months in true backwardation. Relevant to assess at this time are these second and third bullet points.

I will take a closer look at daily SPX and VIX charts to illustrate further what kind of impact Epic Fury has had on the markets.

The incident report directs me to hedge the position when daily moves in the market become more frequent (first bullet point). I haven’t explicitly done this. While always aware of big moves on the current trading day, I have yet to start tracking daily SD moves longitudinally: something that will be getting onto my spreadsheet very soon.

Despite the shortcoming, I have done a few other things to indirectly accomplish the same thing. First, since VIX started to perk up I’ve been trading options closer to expiration. I don’t have the exact date at hand [perhaps a few months ago?], but at some point I noticed the ability to go the same distance OTM with shorter-dated options for comparable premium. The result has been significantly higher theta and a consistently high theta:delta ratio (TD). I suspect position gamma has also been higher but a largely rangebound market despite the war and soaring oil prices has kept this threat on the sidelines.

Selling more calls has helped to boost TD. In addition to DITM short calls managed on a campaign basis (rolling up and out), I now carry as many as five additional [very] short-dated calls. As mentioned above, this probably causes gamma to soar but with America at war, climbing the “wall of worry” is a minor concern while risk of a runaway market seems de minimis [quite to the contrary, on many days part of me has been expecting to see a market crash].

I will continue next time.