Friday, August 11, 2017

the emotions in my Janet relationship

Here's an even more rambling bit on short VIX/trading emotions, rather than strike prices/ % cash objective strategy-

One of my core beliefs on econ/finance is that it is ultimately in the field of psychology, whether it be mass psychology, Tversky/Kahneman individual bias/heuristics, but the point is that even though money has numbers in it, it isn't a pure math field.  It doesn't need to add up, just round up.

This brings us to the emotions of down days like yesterday, where even when we know that structurally vol will contract and politically no one is going into nuclear winter with each other, we cant help but tense up at the red numbers, I'll be the first to say that I'm not immune either.  (An aside- how are there emotions when 90% of the market is just computers trading with each other 1000 times a second?  Those computers are programmed by people, and the built in risk management of stops, targets,etc are the embedded emotions of the people behind the bots.)

I was walking after the close and even though I know it will all be fine and the bears will be back in denial soon enough, I felt this sting which heightened my Janet relationship.  This was like the solemn walk after having a pointless fight with your girlfriend (Janet) and you run over in your head everything that happened and you kind of know it will be OK, but maybe not?

Then you think back to all the past fights (May 18th I think was the last dip) and realize how far in the past they seems, so probably this too shall pass.  More than the fighting though, you realize that is what makes the Janet relationship dynamic, the down days are why we have risk premium and counterparties.  When we finally are back to normal (in the contango ETF sense/ who cares about SPY), you get that feeling wash over you of being welcomed home and you have built your bond with Janet just a little bit stronger.

On the quantitative side, I'm just mechanically rolling ITM spreads out a week or month depending on liquidity/credit, and adding on a little premium on new short SVXY put spreads to make up for some of the premium over time lost from the rolls, as well as short calls to neutralize some of the positions. Depending on how the VIX board looks next week I might go up to 45-50% buying power usage/allocation.  We just have to sit and bear the red numbers on the screen for a month even though everything is fine. This is like knowing Janet is a little angry but it is just time until she gives you that wry smile again.

How about you? Does anyone else feel closer to Janet after yesterday?    

1 comment:

  1. Right here alongside you riding out this SVXY dip, reminding myself that SVXY/XIV have risen from every dip in its history so far...I doubt this will be the exception!