A lot of you bought puts when SPY was near the bottom of the downtrend which was $218. Volatility was at it’s highest so they were expensive…and now you’re getting screwed so you’re like fuck this and selling for a loss because you’re getting IV crushed.
Basically, you’re the same as the bullish investor who bought shares of SPY when it was at a support level of $263 during the downtrend. Then it dropped to $218 and now he’s like fuck this I can’t take this pain anymore so he sells. Then the next week SPY goes back to $263 and he realizes that was a dumb move.
You want to buy puts when a stock is at a resistance level (such as $263 for SPY) and when volatility is low. If you bought closer to $233 or $218 then you bought near the support level which is the opposite of what you want to do. Puts are cheaper when SPY is on the uptrend at a resistance level like $263 with volatility also being lower…so your cost to profit ratio will be much greater because when VIX goes back up the puts get more expensive which is good for you.
Also, a lot of you are buying puts that expire in a week or two. This is a bad idea. If I’m holding puts that are 3 months out then my plan is to SELL them 30 days before they expire. Why? Because theta is a bitch during the last 30 days, the daily loss amplifies greatly.
In the last month there has never been a better time to load up on puts. VIX while still elevated is dangling right at it’s support level and will likely not go any lower. SPY has already retraced to $263 which was the top. Now we’re on our next leg down which I believe we will go below $181 and closer to $167 with VIX going over $100, all by the end of April.
This sideways chop has been killing everyone but this is not the time to sell. You need to be loading up more because when VIX goes above $70 again and you’re like “oh shit it’s going down let me buy puts” you will buy them for a much more expensive price.
I bought puts at the end of January on the opinion that the virus was going to crash the marker and I suffered in the red for almost 3 weeks before the market started to go down. It was a painful 3 weeks but the wait was worth it. VIX was like $15-$20 then when I bought.
Point is you make the most money by being in a position to profit BEFORE the stock moves greatly. Not during it or near the end of it.
While TA is highly frowned upon here (mostly because none of you know even wtf you’re looking at) it is very helpful in giving you key areas to look for (support and resistance) to know when to buy and sell. If you aren’t using TA then you’re essentially trading in the blind.
Here’s a chart I made for SPY
The blue lines are both support and resistance lines. When a stock drops below it’s support line that same line then becomes the resistance and vice versa. Reviewing the chart you can see that it’s a good tool to have to be able to predict when a stock may bounce or retrace while reviewing other indicators such as RSI and moving averages to back up your claim.
Remember to ignore your emotions and trust in your DD.
SPY SPX TSLA June 19th 2020 Puts
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.