By Steve Papale
Tomorrow US markets are closed in observation of Independence Day. In the spirit of being a full service education provider, I have one trivia question to offer up today. The smallest park in the world is located in Portland, OR. Question- True or False? The total size of the park is 453 square inches. Answer at the bottom of the blog.
In case you have been on the moon over the past week or just asleep, markets have been just a bit whippy. Monday the Dow was down 350 and the rest of the week we have been slowly trying to climb back. The VIX popped on Monday, up over 30% to close just under 19. Lots of headlines contributing to this – Greece defaulting on debt, Puerto Rico getting close to the same, terrorism around the world and a some talking heads suggesting the market is long overdue for a correction. After a historically range bound market in the first half of the year, July is starting with some volatility fireworks (pun intended). If you’re a technician you probably noticed the SPX dropped down to its 200 day moving average on Monday and has moved up from that level. So what about the long weekend coming up? Threats of terrorism domestically along with a vote in Greece on Sunday probably means IV’s will remain firm at least until next week.
As options traders how should we handle all the changing news and volatility? Same as always. Keep to your knitting. Short vega/gamma positions might get a little stressed as expected but butterflies and condors handle down moves quite well due to favorable volatility skew on downside. Losses that occur are more due to increased IV levels against our short vega rather than from short gamma. Close and adjust based on rules that should have been established before the trade was put on. If things continue to get more volatile cutting back size especially if capital costs increase can be prudent. Jumping in and out of the market can result in missed opportunities. Focus on the process first. Your bottom line and nerves will be much better.
Answer to question: False. Total size is 452 square inches J. Have a great holiday weekend!!