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Why did selling SP500 volatility trades blow up?
Created on: 1/17/2021 5:01:31 PM

why-did-selling-sp500-volatility-trades-blow-upMany have made their fortunes selling volatility premium and then losing it, that is because they are running down the lit fuse and not understanding that eventually the strategy blows up.

In the chart below periods marked with A, B, C, D are periods of chasing yield which was so great the selling of option premium became vogue. Yes, this strategy worked for a while and 'this time was different' worked, until it didn't.

Selling volatility work great during period gray A until the cycle ended at red A.
Selling volatility work great during period gray B until the cycle ended at red B.
Selling volatility work great during period gray C until the cycle ended at blue C.
Selling volatility work great during period gray D until the cycle ended at blue D.

The point is if you play the selling volatility game, know thy cycle. Cycles matter!. The dominate cycles below gave you plenty of time to go to side lines when risk became apparent. 

NOW >>What is interesting is gray E, VIX is above 20, and the red cycle is rising with the blue cycle is pending a swing up which suggest we are in a pending crisis moment (deflation shock). 

IDEA: Have cycles studies in you investing plans, mix them with sentiment and market fundamentals.




VIX



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Investing Quote...

.."Success in trading means excess of profits over losses. If anyone tells you they can almost be invariably successful, put him down as trying to impose on your credulity."..

Richard D Wyckoff


.."The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market."..

George Soros



.."A businessman cannot force you to buy his product; if he makes a mistake, he suffers the consequences; if he fails, he takes the loss. If bureaucrat makes a mistake, you suffer the consequences; if he fails, he passes the loss on to you"..


Ayn Rand

..“The main purpose of the stock market is to make fools of as many men as possible”..

Bernard Baruch



..."Politicians and diapers must be changed often, and for the same reason."..


Mark Twain




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