Wednesday, May 17, 2017

Hedging Bullish Positions to Reduce Portfolio Risks as Market Plunges

The stock market sold off today after $SPX could not break above the 2400 level in the last 2.5 months while $VIX dropped to historical low level for a couple of weeks. In about half a day, SPX erased all the gains after the French electionresult day as describe in my post and fell below 50 day moving average with huge volume.

While the headline news was political concerns about US president, the technical analysis of the market trend did signal a major weakness of the market. All of the stocks discussed in my blog expressed signs of weakness as well.

So, I hedged all long positions with short calls at Wall Street noon time with the exception of EPI which does not have sufficient option liquidity. The short calls had Delta from 0.28 to 0.35, with In-The-Money expiration probability around 30%.

Here’s the list of short calls for the recent long stock call options.

Short Calls
June 9 $162.5

June 9 $42

September 15 $95
Closed position
June 9 $30.5
Sold 2 days ago

At the time when I was trading, PVH was trading below its 50 day moving average but above my stop loss point $97.79 (as described in my post Trading chart pattern from a bull flag turning to a high base with diagonal spread) after bouncing back from below it. Since it was the weakest stock in my portfolio, I just sold the September 15 $95 Call to close the position for $8.60 (close to middle price) which got filled immediately. As with other stocks, it resumed plunging after Wall Street’s lunch time and it broke below my stop loss point by the end of the day.

For MU which entered into a diagonal spread a couple of days ago, I did not roll down the short call on MU since the option price did not reach 1/3rd of the initial premium at the time.

Another better hot stock NFLX had a good advance, but seemed to pull back in the last few days. It fell 2% when I sold its June 09 call at strike $162.5.
Overall, it was a busy day for me as a part time trader, since it took me about 1 hour to complete all the trades. I also hedged my longer term bullish positions on SPY & QQQ call options with short calls. These positions were entered before the initial French Election result on April 24 and were not posted in the blog. I plan to provide some summary in the future about these longer term trades.

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