Are We at an Inflection Point?

The market took a big dive this week. In fact, this whole January the market has been crashing down. This is the third year in a row that my portfolio has taken a hit in January. Maybe I’ll learn my lesson in 2023 and take a break to start the year.

The million-dollar question is does market finally believe that the Fed is going to raise rates and tighten liquidity? Or is this a typical market drawdown thanks to a sizeable OPEX that expires today? If the latter is true, we may see a strong rally next week as a lot of delta hedges are being taken off. This could happen by Tuesday or Wednesday. But if it is the former, Powell could try to save the market at the FOMC meeting.

It is probably wise to take chips off the table when there is so much uncertainty. I’m thinking that if there is no snap back rally next week, then we are really heading towards bear territory.

This week, I closed all my short puts in my short vol fund. I was thinking there were dangers ahead on Wednesday and I decided best to unload most of my stuff on Thursday morning. The timing was lucky as the market headed up initially in the morning. Even though it started to look like I’ve timed it wrong again, the market eventually headed back down and confirmed my initial belief. Today I unloaded remaining puts and short a lot of calls instead. Today’s fake rebound, however, cost me a lot because I thought I got the direction wrong. I must remind myself to wait sometimes. Nevertheless, I’m glad that I de-risked almost everything as I await to see what next week might bring.

Unfortunately for my personal portfolio, it is loaded with a lot of SPY LEAPS. Most of these LEAPS are in the money. I am suffering quite a lot in the portfolio because of it. As anything that is levered, it is always wonderful on the way up, but painful on the way down. I’m doing my best to hold onto these positions as a lot of them are maturing in 2023 and I feel like holding them to see where they are headed. The only thing I can do now is to sell SPX calls everyday hoping that the market doesn’t fall further than the premiums I can receive. Doing this in a sense will limit my gains if the market bounces back. But alas, one must survive to keep playing.

SPX YTD is down 8.31%. So at least one portfolio is outperforming the index.

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