Over the weekend, all the index futures gapped down – and continued selling throughout the night.
While there was a bounce early in pre-market session – the market looked like it was selling off into the market open.
News was that everybody was concerned Trump wouldn’t be able to execute on his promises – given his failure with the healthcare bill from the prior Friday.
But we saw this fear – as an opportunity short volatility – as well as to buy in the indices.
In my previous weekend post entitled, Wkd 3/25 – No Healthcare Bill Vote, Options Pricing in Crash,
I mentioned that options were pricing in a crash and that volatility was very high in the near term – offering a potential short opportunity on the VXX.
On Friday, implied volatility specifically for options expiring on Friday March 24 – were through the roof – implying a market crash. I think these levels are overblown and this likely elevated level of VXX could offer a potential entry on the short side.
As of now typing this, VXX is at 16.32 — almost an entire $1 drop intraday giving us about $350 in gains in a few hours.
Additionally, I mentioned that
If there is a vote on Monday, then I would expect the futures to make one more low before a bounce. Otherwise, because we made a new low, there’s technically enough waves to consider this low a local low.
So even though there was no vote today on Monday – markets still reacted according to the pattern – and made one more low – except that this one more low went lower than I had expected.
I viewed this as a buying opportunity when the markets sold off into the open – in what appears to be a b-wave low – the ultimate buying spot when it comes to wave patterns.
Not every trade will be correct – the key is what to do when things go wrong.
Most of the time the best thing to do is to be patient and wait for the right time to adjust an option spread.
That’s what we did with this week’s iron condor — which is basically the combination of a putspread and a call spread.
With the market dropping past our short strike of 235 – we remained calm and patient.
The call spread was making money with the drop, but the put spread was losing more money.
But we waited.
When the market rallied towards 4th wave resistance at 2355ES – we took that opportunity right at that top to reduce half of our short put exposure – with the expectation that the market could go lower.
Our plan was that if the market would fall as a result of fears of the healthcare bill, then we would wait for a potential bottom – and then enter in a put spread — that’s exactly what we did this morning at the market open at 9:30am.
As the market rallied over 10 points over 2330 ES – we exited our existing short put — at a much better price than we would have gotten if we exited at the market open.
The result was we were able to safely adjust the short put side of our iron condor — and replace it with a much higher probability lower short strike of 231.5 instead of 235.
Now we have a super wide iron condor with strikes between 231.5 and 240 — all we need is for the market to stay between these two strikes to realize the max profit.
If I were to do anything differently, I would consider exiting the full amount of the short put when we got that rally towards 2355ES — and I would have increased my bullish position size on this morning’s bull put spread.
But overall – considering I was “wrong” about the market staying range-bound through my iron condor trade, the above adjustment has now turned the trade into a super wide iron condor and I think there’s a very high probability that this trade will turn out in our favor this week at expiration Friday.
Our bullish trade alert was initiated at the open when ES was at 2320ES.
From the looks of it, – even though we barely made a new low on March 24 – I was suspicious about it being the final low – and sure enough – we moved lower – but now we have what looks like a completed 5 wave sequence.
Going forward, a drop overnight – should lead to a buying opportunity tomorrow morning – unless we just end up consolidating in this region – which is equally likely. But I think we should slowly drift up this week after a correction perhaps tomorrow morning.
Despite the gap down drop over the weekend, the Russell was able to recover the entire amount and enter into positive territory.
The prior S&P chart – suggested a 5th wave down was either complete or would have one more low. Turns out we had a little more than one more low – but did potentially bottom and turn back up.
In silver of previous post, I mentioned that
Silver is much stronger than gold. Previously, gold was outperforming silver over the last few week, and silver was underperforming. It appears in the next leg up, silver should lead.
And based on the Sunday night action into Monday – the rally in silver appears to be a bit stronger than the rally in Gold so far with silver jumping from 17.77 over 18 – now at 18.12.
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