Monday, August 24, 2015

Monday's Agenda: The China Panic

I listed four potential trades in my "Monday's Prospects" post.

But with the China Panic continuing, all bets are off. What is happening today is outside of my normal trading rules, and I won't be opening new positions today.

What's happening is this. The S&P 500 fell sharply the first five minutes after the opening bell, and then bounced, reclaiming about half of its loss

SPX at 9:25 a.m. New York time, two days 1-minute bars

Volatility on the S&P 500 -- the VIX -- exceeded all of its levels since the Great Recession Peak. The volatility high so far today is 53.3%, and the recession peak in 2008 was 89.53. Friday's low was 20.80.

So market volatility on the S&P 500 jumped by 90% in the span of just a few minutes.

VIX at 11:45 a.m. New York time, 10 years weekly bars

For new trades, I treat events like this under my long standing rule about news events. I follow the dictum of the Napoleonic wars era banker Nathan Rothschild: "Buy to the roar of cannon and sell to the sound of trumpets."

Once the news is announced -- in this case, by the first five minutes of the trading day -- then there is no more profit to be had from it. Profit comes from anticipation.

So I'll deal with the China Panic in this way:

1) No new positions until things settle a bit. I'm a speculator and I bet based on the odds. I can't really calculate usable odds in a market like today's.

2) Delay adjusting existing positions until the direction of prices becomes clear. My positions all expire in September. All of the iron condors went in the money at the open today, but all but one (WMT) moved back in the money with the bounce.

3) Take profits under my normal rules. One position, HAL, has less than a dime of value on its contracts. That generally is the point where take the money and run.

Interesting day.

-- Tim Bovee, Portland, Oregon, Aug. 24, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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