Actually this is a following-up on my “shorting S&P500” trade posted in
I made a 111.62% ROI in one week by shorting the S&P 500 using put options. The S&P 500 dropped only 3.5% during this trade, but the implied volatility (i.e., VIX) of the S&P 500 surged from 15 to as high as 29. Additionally, put options have built-in leverage arising from Delta and Gamma explosion. See how powerful volatility trading using options can be.
While it’s possible the market may rebound sharply from this point, my volatility indicators are beginning to show some mid-term deteriorating signals for the market. Therefore, I have closed this position and will use the profits to continue shorting the S&P 500 at NO COST.
Meanwhile, I will observe if the implied volatility itself shows any signs of collapse. If it does, there will be a very lucrative trading opportunity to short the volatility, given the significant rise in VIX.
Here is an update on my second round of shorting the S&P 500, which I initiated on August 2 (last Friday). On August 5 (the following Monday), the S&P 500 dropped by as much as 5%, and the VIX reached its highest level of fear since the pandemic. My return on this position once again approached 100%. Given that the implied volatility had become too high, making it unsuitable to open new or hold single-leg put options, I closed this position for a profit. I then replaced all my short positions with put spreads expiring on September 6. Due to the substantial profits from the earlier shorts, my current short position is almost at zero cost.
Hi, after that I rolled my put options to expire in late September, as we still have a bearish bias on the S&P 500. But as I mentioned earlier, the VIX has reached an extreme level, so I began shorting volatility last Wednesday (still a little late ) while also establishing a mid-term long position on the S&P 500. The S&P 500 is approaching a critical level, and I plan to make bets in both directions when it gets there. Looking forward to learning your insights
From an IBD point of view: Mike Webster may well consider today a “Virtual” Follow-Through-Day. IBD dogma (Bill O’Neil) requires a strong up day (like today), but also volume higher than day before. It looks like vol will be weak today. Mike Webster, Bill’s disciple and right-hand man, tells us volume is too polluted with all the algos these days, so he pretty much throws that out. Mike really focuses on the 21dma to know when to “push on the gas”.
All that said, today’s rally is due to the PPI numbers. Tomorrow, CPI comes out, then I think we are clear for a while. So, if the market is happy again with CPI tomorrow, my expectations would be that we are done going down, were are in a confirmed uptrend and volatility will decline. But expectations are broken all the time
Update: IBD called a follow through day and raised recommended exposure to 20-40%. Watch CPI tomorrow, the short trade might be over.
) while also establishing a mid-term long position on the S&P 500. The S&P 500 is approaching a critical level, and I plan to make bets in both directions when it gets there. Looking forward to learning your insights 
