Papale Market Pep Talk

Last night my oldest son, Matt graduated from 8th grade.  I still remember like it was yesterday his first day of Kindergarten.  It seems like the “theta” on my young kids is accelerating.  They will soon be adults.  So to all you who have kids who are suddenly growing up very fast – spend some time this weekend with them if you can.  You can ‘t stop the theta.

In case you have been traveling to outer space this last week or so, markets have been a bit whippy.  From the market-can-do-no-wrong mentality to sell-now-ask-questions-later, things can change very quickly.  As options traders we have likely seen the look of our positions change fairly dramatically during the week.  As we know, the two main drivers of option performance is price movement and implied volatility.  Each is different today than it was a week ago.  The DOW is off around 500 points in just over a week and the VIX has moved from under 15 to nearly 18 in the same period.

If you are long vega you are probably a pretty happy camper – depending on what IV level you got in and when.  If you are an options seller – maybe not as much.  Unless you were short gamma and delta at the market top and desperately needed a selloff.  In that case you may be ok.  My point is we can generalize about how strategies perform in various market environments but any given position can win or lose in almost any market based on when and at what price the position was established.  That why in any given month two traders trading the same strategy can have different results.  It does not mean one trader did a better job only that some things cannot be controlled.

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