I'm Chicken

I used the latest bounce to exit my SPY long and instead sold the SPY 104 puts naked. I remain short the 112 SPY Calls as well.  This is a much more defensive position. The risk of contagion is simply too high. I have been trading very well the past few weeks and am not interested in giving it back.


aaron said...

This is the first low volume trickle down we have seen in a while. Not really sure what to make of it.

Chaos! said...

Hard to comprehend why there's so much call buying today. That's very negative for the short term.

PJ said...

Tsachy, selling puts is still dangerous here. We are now entering the heart of Great Depression II.

This employment report was extremely disappointing - I don't know why Obama called it good, his advisors must be idiots, he is talking just like Hoover - but next month's will be much worse. The daily Treasury statements show withholding taxes strong in the first two weeks of May, then collapsing the last two weeks. Since the survey was in the second week of May, that tells us that next month's payroll report is going to be much, much worse than today's.

The retail spending collapse accelerated sharply a week ago. It's been matched by even sharper retail spending declines abroad.

Meanwhile, the stresses on leveraged entities, especially European banks, are becoming intense. Euribor funding costs now exceed returns on many "carry-trade" assets. With negative net interest margin, banks are forced to delever. That drives asset prices down, damages balance sheets, and breeds distrust of counterparties and further rises in Euribor rates. There has been no letup in this trend for a month now and there is no telling how long it can go on.

The deleveraging and the economic decline are going to continue and they may overwhelm sentiment and oversold conditions in equities.

I have a long term view and so I am happy with my all-in short position. I will sit through any bounces. This is a rare opportunity on the short side.