Good golly, what a mess!
The Futures get halted when they go "Limit Down" which is a 5% drop before the market opens. That means there were so many people dumping positions that they pretty much ran out of buyers – something I have been warning could be the consequences of a thinly-traded rally for more than a year now.
Not that being right helped too much, our current portfolios were adjusted more bullish into the weekend in expectations of a bounce (and expectations of more stimulus) and we're getting the very opposite of that. Fortunately though, we did cash out of main portfolios back in September, when we had substantial amounts of cash tied up and, as I said at the time:
Hedging a $1.7M LTP would be very expensive and what if next time we didn't time the turn in the STP and instead blew the turn and lost money there as well as the LTP. Then we'd be back to $2M and needing to make 30% to get back to $2.6M and what if it's hard to make money next year or what if we have another crash and the market is down 40% – it's just too much to risk vs. putting $2.6M safely on the sidelines and simply looking for new opportunities.
In November, we started putting some virtual money back to work but just $500,000 in our Long-Term Portfolio and $100,000 in our other Member Portfolios (the 0.6M of the $2.6M we had cashed out), keeping mainly in CASH!!! – just in case the market finally crashed but this move lower is surprising us and we'll have to wait PATIENTLY to see where things settle out but we can immediately add more hedges in our Short-Term Portfolio (STP), who's primary function is to protect the LTP in just these kinds of cases.
Don't get excited by the STP's gains, they are more than offset by losses in the LTP. The STP is there to hedge the LTP but hedging is not magic – it only mitigates the losses, giving us cash to adjust our long positions on the way down.
One thing we definitely want to do in a sell-off like this is lock in the gains of our long hedges so we'll be cashing in our Nasdaq Ultra-Short (SQQQ) Jan $15 calls at about $13, and we'll replace them with something like Jan $25 ($8)/$35 ($5.50) bull call spreads at net $2.50 so we have another 300% upside potential on the next hedge.
Oil is a disaster but Natural Gas (/NG) shouldn't be affected so we'll want take advantage of that drop but we'll have to see how the day plays out. FXP should be doing well (our original virus hedge) and TLT will be awful (10-year close to 0.4% this morning as people panic into bonds) but we'll have to see what happens after the market gets through it's first halt – which will happen when it's down 7%, the next halt happens at 10% and, at 20% – they close for the day – so trade fast and early!
