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.