It has been quite a hectic and frenetic day, so I am just getting around to writing out the logic behind today’s short cover of my November (VIX) $35 puts. Basically, I was betting that once the S&P 500 hit the first technical downside target at 1,065, a long overdue and furious short covering rally would ensue. This was when the (VIX) was trading just shy of $46. This was not only an important Fibonacci level, it also showed up in the technical models of several different persuasions. Such a rally would cause the market volatility to plunge, (VIX) to collapse, and the $35 puts to soar. By closing out my short $35 puts which I used to lower the cost of entry on the (VIX) bear put spread, but keeping the long side in the $40 puts, I was tripling my bet that volatility would fall. In options argot, I jacked up the delta on the position from 10% to 38%, making it much more sensitive to market movements, something you always want to do when a position is about to make a sharp turn in your favor.
That is exactly what we got. After covering my short, the (SPX) rocketed by 65 points, and the $35 puts squeezed up from $2.20 to $3.50, a pop of 59%. The long puts I kept jumped 42% from $4.80 to $6.80. The (VIX) went out today at $37.72, some $5 down from where I made my move. This enabled my Macro Millionaire virtual hedge fund to post a year to date gain of 40.87%, a new all-time high, and the first time over 40%. This is how it’s done.
I don’t know if any of you have noticed, but I have now posted 17 consecutive profitable trades for Macro Millionaire over the past two months, and I will be gunning for number 18 tomorrow. I don’t do this very often, but it has occurred before. I have been working my ass off trying to clock as many profitable trades as I can while trading conditions are ideal. Wait for crappy trading markets to take those extended European vacations, as I did earlier this summer.
It just so happens that my particular strategy and philosophy on risk control are ideally suited to these kinds of extreme, choppy conditions. It was a skill that I developed trading the horrific Japanese bear market of the nineties. I have been able to do this while many of the largest hedge funds have been put through a meat grinder, with Q3, 2011 stacking up as the worst in 15 years for the hedge fund industry. I never was much of a joiner. For those who wish to participate in Macro Millionaire, my highly innovative and successful trade mentoring program, please email John Thomas directly at firstname.lastname@example.org. Please put “Macro Millionaire” in the subject line, as we are getting buried in emails. Hurry up, because our software limits the number of subscribers, and we are running out of places.