To everyone liquidating your put options, PLEASE READ

by MJackisch

I just want to ask you what was your original thesis was regarding this medical and financial crisis?

I, for one, am still bearish, even if SP500 goes up 5% tonight. Consider this, during the 2008 financial crisis, the VIX hit an all time high at 89.53 on 10/24/2008. It subsequently crashed down to 44.25 as of 11/4/08 (almost exactly 50% retracement), only to rocket back up to 81.48 as of 11/20/2008. Relatively speaking, options were hella cheap on 11/4/08 considering the turmoil going on at the time. If you were to go back and look, SPY closed at 97.11 on 11/3 and closed at 100.41 on 11/4, +3.4% in the green for the day, and we still had another 34% down left to go!

While I’m not saying that FOR SURE the same thing applies this time, we are now nearly at our 50% retracement point on the VIX. We peaked at 85.47 on 3/18/20 and, as I write this, are at 46.8 late in the evening on 4/5/20 (45% retracement). For me, I still have A LOT of unresolved questions about this market that feed my bearish sentiments. For one, we are GOING to have record unemployment, and I just don’t see that getting fixed quickly. Yes, stimulus checks, unemployment income boosts, and generous federal loan programs for small businesses help, but what about the negative wealth effect on consumption? What about over-leveraged corporations who were pleading for mercy the very INSTANT their revenues were disrupted? What about the retailers refusing to pay rent?

The reality is that even countries like Italy, where there have been steady declines in new cases and deaths, are extending out their stay at home orders because the country doesn’t want “the curve” to bend back so soon. We MIGHT be seeing the top of the curve for New York right now, but the rest of the country? Most of the regions are still going up! Just because the curve has started to bend back the other way, doesn’t mean we can all just open up shop again and everything is dandy. Hell, even in China where they allegedly are all back to work, look at their weekend traffic! There are a lot of unanswered questions left, and many of them do not have easy answers.

So should you sell or should you hold your puts? Idk, that’s for you to decide. But before you get all wrapped up in Trump and OPEC’s bullish oil thesis (which is a whole ‘nother “no easy answers” situation by itself), consider just how easily this recent whiff of positive sentiment can be swept away once the other realities of this present crisis are front and center and start needing to be addressed..

Good Luck, God Speed.

 

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.