Disclaimer
This is for informational purposes only.
Discussion
Trade 1: Sold the puts I bought back toward EOD yesterday. Now back down to a roughly half position.
Trade 2: Sold the rest of the position.
Trade 3: Bought a small position in August 11 SPY $450 calls.
Rationale 1: Defensive sector relative strength and VVIX pointed to further downside once we got past the 9:30-10 window. The downside materialized, but defensive sector strength started coming off a bit, and HY CDX didn’t confirm the mini-whoosh lower. I just want to sit comfortably now, so I don’t anticipate adding back ahead of CPI tomorrow even if I get the chance. I’d rather add again on a fakeout move higher in response to CPI, as I believe CPI is largely irrelevant to the bull case at this point.
Rationale 2: This is a pretty panicky move in VVIX, up over 11% on the day into the bottomy hour of 11-12, and HY CDX isn’t really moving like it typically does in sell-offs. So, with “Vanna and charm” flows likely incoming here for the rest of the day, good time to just sit in cash and wait.
Rationale 3: HY CDX really didn’t confirm the move lower and defensive sector relative strength is starting to flag. Market wants to go higher here, and I think a 3% move up by Friday is easily doable, yielding a potential return of 9x.