The Difference Between Down And Up (And I’m Trimming This Spike As Planned)

Up, no, now down! Wait, up and up more. Wait down, it’s a crash. It’s another crash. Wait, it’s a big rally! Can you tell the difference between the up and down days?

Well, today brings us just exactly the kind of insane bounce of 10-30% in some of our names into which I told you I’d trim these positions when I sent out the Trade Alert that I was buying them…just yesterday. And I’m doing exactly that, trimming some of our longs, including those that I nibbled on just yesterday, almost across the board.

Long-time followers of mine know that I am pretty adamant that trying to day trade the markets over 10,000 days of your life (27 years, about how long you should want your money to work for you if you’re going to bother trying to make your money work for you) is a fool’s errand. But when stocks go down 10-30% in one day and then go up 10-30% the next day — heck, MAR and UBER and FB and others have done 10-30% moves already this morning — I’m finding that I’m trading more actively than I have in years. Daytrading won’t be a new norm for me and I’m going to slow down when the markets slow down, but in the meantime, I’m finding that we are getting some good alpha vs the broader markets by buying/covering shorts on the crashes and trimming/shorting on the spikes.

The premium on both puts and calls on indices and on individual stocks are very high as a result of these 10-30% intraday and day-to-day swings so I’m sticking with very near-term options when I do use them, but I’m not using options very much on these trades. If you are going to buy options while premiums are this high, I’d suggest sticking with slightly in-the-money options. I might consider shorting a covered call position on a small fraction of some of our longs, but don’t do much of that or you can end up getting most of your longs called away from you if/when the markets do put on a sustained rally.

If you don’t know what any of this option talk means, then don’t do options at all. If you have never shorted an index, don’t start shorting them today. For most of you at home, I’d suggest trimming some of your longs and raising a little cash on days like today when most of our Revolutionary Company positions are through the roof. I’d suggest adding to some of our Revolutionary Company positions when the markets are crashing like they were yesterday. Or I’d suggest making sure you have some cash on hand and then sitting mostly tight for the time being and let’s see what the next pitches from the economy, the markets and the Coronavirus Crisis are.

Be careful out there. Don’t get greedy trying to game the ups or the downs, but use them gently to your advantage.

Lyncoln and her cousin Sofia know the difference between up and down. Let’s make sure we do too.