With so much complacency around, time to hedge and swing！
At the moment, the global supply chain is still quite fragile, and the problem is likely to continue at least until the second quarter of next year. The energy crisis will be the biggest problem this winter. Inflation expectations remain very high, and U.S. treasury yield curve continues to be flatten（1、2、3-year treasury yield climbs faster than the longer term, percentage wise）. U.S. consumers confidence has only slightly rebounded from its lowest level in ten years, so the risk of unintelligible pull-up in the current US stock market speculation cannot be underestimated.
In the current market conditions, it is better to be cautious. It is very likely that the risks have already outweighed the rewards. Recently, I emphasized the benefits of the hedge and swing trading several times, and such prudence is likely justified. Take the example of SOXL, the Direxion Daily Semiconductor Bull 3X ETF, which has been discussed several times since early September, today is indeed a good time to short rallies.
The above is the recent trend chart of SOXL, which fluctuates considerably. Short the rallies, then combined with swing trading and timely hedging, likely shall be a good strategy, and its sustainability is kind of good too, through ITM call option roll over and hedging (short strangle).
When the panic index (^VIX) is very low, especially very close to a new low, it is precisely the time to be very vigilant, such as, among the long positions, at least, some profits needs to be taken off the table, or being hedged, which likely will be a very prudent move. This morning, VIX was as low as around 15 while S&P 500 within very short distance to 4600, however, with quite some uncertainties going on, such complacency can not last long. Thus, it would be wise to cash in some long positions, while sell covered calls against other long positions, and meanwhile, moderately short the rallies on something similar as SOXL, which has very high leverage, high volatility dissipation and tracking error. When the volatility goes up, especially when the market likely swings or starts trending waters, such target likely is very good for the purpose of swing trading and hedging.
The above is the translation of posts below early Tuesday at Wechat group【法 • 商 • 文 • 荟】
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