Good Morning! I'd like to say that I was right on the rally yesterday... I called a short term rally for the week... but in this case the market was macro driven by the temporary bailout of pensions by the BoE. Dealer hedging helped, but sentiment was the big driver.
Yesterday showed that CBs want to bend, not break economies to reduce inflation. When something breaks, they will come to fix it. If the BoE did not step in, we would have not seen a rally. Dealer positioning will help market moves, but we are in the throes of macro...
And as I have said numerous times, the macro picture is negative. Throw in the negative gamma profile of individual equities, but positive vanna and charm profile, all moves will be more volatile than typical. Plan for that.
It makes for a tough trading environment. It is too volatile for short gamma flies and condors, but not directional enough for strangles and straddles. Trade planning is needed and taking profits when you can finance a leg of a trade. For example:
Putting on a strangle, and selling one of the legs when it makes the whole trade profitable and getting free money on whipsaw, and not being sad if it never happens. Tough strategy that requires discipline, and is not usually worth the work. The other way to trade...
Is using #volland I buy sell gamma peaks and buy valleys. It requires macro to be stronger to fight your position, basically gives your trade a headstart. In most equities we're at peaks, and BoE aside, macro pressure is down. Therefore, use any ST rallies to short the market.
Although there are still very strong vanna and charm effects for this week, macro is in control. Just be long gamma in your trading, disciplined to take profits instead of trying to hit 5-run HRs, and don't overallocate. This is the way to succeed in this trading environment.
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