בס״ד
Waltzing a Danse Macabre (VXX)
Posted on March 9, 2020
We’re not playing favorites here; that only leads to fights.
But we do have a very strong… hunch, shall we say, that we’re about to begin a second bounce higher.
It’s still a day or two away, but it’s close enough to be tradable, and that’s why we’re posting it today.
That said, Dow futures are down 1200 points pre-open, so we’re obliged to make the following two-part announcement before we go to press.
The first relates to timing, the second to actual moves on the indexes.
And we start with this –
I. Timing
The holy Jewish holiday of Purim begins on Monday night/Tuesday [giving way to celebrations in Jerusalem on the following day] and commemorates the Jews turning the tables on their evil enemies and enjoying a robust, two-day killing spree across the Persian Empire some 2500 years ago.
Proper permission was obtained, of course, from the King, Ahasuerus, before the knives were drawn and the blood flowed freely – as the book of Esther casually details.
And a great sight it was!
The Hebrew term nahaphoch-hu is invoked to describe the day and its events – a term that’s variously translated as ‘revolution’ or ‘reversal’, a ‘turning of the tables or tide’ and the like.
And because that joyous day falls so close to what appears (according to our indicators) to be a short term bottom, we’re going all-in and figuring the G-d of Israel will decree a nahaphoch-hu in the mid-week trading sessions this week.
The G-d of Israel Decides All
We’re not being whimsical or cavalier when we suggest this, either.
It’s very common for major geopolitical events to align precisely with the Jewish calendar, and we’d be remiss if we didn’t anticipate market events conforming with the annual cycles and patterns that the Holy One of Israel established at the dawn of creation.
It is an inviolable rule that every season and date possesses its own unique spiritual energy.
So it follows that this Tuesday and Wednesday possess the energy of reversal.
Keep your eyes wide….
By the way, it’s also quite possible we’ll see a “revolutionary” action on the part of the American financial authorities – perhaps an outright closure of the NYSE due to the spread of the Coronavirus…?
II. Movement on the Index
Reversals are one thing – catching falling knives quite another.
We’re not suggesting that the Dow, S&P 500 or NASDAQ have put in definitive lows and will be ratcheting higher toward former highs by week’s end. It’s rather likely that at today’s open the former lows will be taken out.
What we’re far more confident predicting is that volatility is currently peaking, and that even if we see lower lows today and tomorrow, VIX and VXX readings will not move significantly higher.
In fact, from the indications we log on a daily basis, it’s very likely volatility will be lower by this Friday’s close.
Sentiment, too!
A look at current sentiment numbers also confirms that fear is peaking. The news – though bad – is not as panic-struck as the lead-up to coronal landfall in Washington State last week, and we already hear voices reassuring us that, yes, it’ll be bad, and that, yes, we’ll need to take some drastic measures, but we’re not all morgue-bound.
Have a look here –
This is the Investor’s Intelligence Bullish Sentiment chart for the last decade, and as you can see, the weekly reading just buckled.
Investors Intelligence is a survey of newsletter writers (like ourselves) that offers a contrarian indication when readings are extreme.
Are they extreme?
Put it this way – they’re extreme enough to get the White House and the Fed and major brokerages sweating buckets.
And that’s all we need.
With kind regards,
Hugh L. O’Haynew
5 responses to “Waltzing a Danse Macabre (VXX)”
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Tweets by hughlohaynew
Just joined and late to the party here. Looking at this trade with current prices:
selling the VXX June 19th 36 CALL for $9.05 and buying the VXX June 19th 41 CALL for $7.30, for a credit of $1.75. Use those funds to purchase the VXX June 19th 16 PUT for $0.33. Total credit on the trade is $1.42. What to do? Take the credit or buy 4 PUTS?
Whoa now, ND!
Whoa!
You gotta lot of options here, so to speak…
First up, if the prices you quoted are still good, you could take the $1.75 and walk — without a great deal of risk.
Not a bad choice at all.
Depends upon how much of a betting man you are.
You could also use the funds to buy a June 24 PUT, or a pair of 20s, or a full rack of 5 16s.
Again, the question is are you prepared to leave it all on the table?
Your maximum risk is 5 points. Gain is theoretically unlimited.
So go look in the mirror…
And ask yourself —
WHO AM I … ?
MOO-HOO-HA-HA-HA-HA-HA!
Ahem…
Wishing you the best of British luck, brother.
Keep writing.
And stay healthy!
Huey
I’m not very familiar with the kind of spreads you post, but am definitely intrigued with the potential. Mostly I trade options like straight-up numbers at roulette. Killed it today with DUST calls.
Hi,
I’m new here. Have some past experience buying options and some futures. Not comfortable selling options or buying futures especially in this environment. Your trades look great except the one losing some 30,000% which I don’t understand if it was hedged on the other side.
Is there a white paper or similar with the membership that explains things in detail?
So far I’ve only seen a quick summary.
Hoping for full understanding of total risk in any particular trade.
Much appreciated, Greg
Hey Greg,
Good to hear from you.
Let me address the sour Apple trade that you commented on.
First up, there’s no hiding the fact that we ate it right to the core.
Bleccch!
Had we held on for just a few more weeks, we would have exited with a nice profit.
Ah well, hindsight’s what it is.
If you’re really curious, though, the details are like this:
We sold a CALL spread and used the funds to buy a PUT. Debit was $0.03.
The stock immediately got away from us on the upside, and when expiry approached we had to consider rolling it out vs taking the loss.
There were a lot of factors at the time mitigating against rolling it — e.g., new highs on the stock nearly every day, and a market that was continually propped by the Fed, etc.
In the end, we bit the bullet and took the full loss on the CALL spread (10 points).
If you do the math, you’ll see a loss of $10.03 on a $0.03 investment is precisely -33,433%.
Fully hedged, yes. But painful to deal with all the same.
Since then we’ve seen some stellar winners that by far make up for that very rare fizzle.
Regarding the risk of any particular trade, we list it wherever possible.
Like here: https://www.ajewandhismoney.com/a-jew-and-his-money/bill-gates-meets-the-butcher-msftxlu-xlv/, and here: https://www.ajewandhismoney.com/a-jew-and-his-money/pull-that-empty-rig-over-trucker-jbht/, and here: https://www.ajewandhismoney.com/a-jew-and-his-gold/the-simple-complexity-of-it-all-smpl/.
Sometimes it’s too complex to figure the risk/reward, but we’re almost 100% hedged, and we ALWAYS indicate when our positions are ‘speculative’.
A white paper of sorts will be forthcoming — what we’re tentatively calling our Tactical Guide.
There’s been a great demand for it of late.
Shouldn’t be too much longer in the making.
Feel free to write often, though, and ask questions whenever they come.
Wishing you all the best, Greg.
May the G-d of Israel shine His countenance upon you!
Hugh