Rotation hedge with Energy ETF
تم تحديثه
Ok boyz, so you guys are strong believer in momentum, you've ran your backtests on US Sectors and fund out that with a roughly 55% probability the best performers of last year will be the best performers of the next year. So you are still long tech like crazy and believe the FAANG stocks will keep rising. However what does financial professionals like to do? They hedge part of their risk, they maximize their sharp ratio by minimizing volatility with diversification in uncorrelated assets.
What is your biggest risk right now? With a new vaccine on the way? => A big rotation of smart money from leaders (tech, healthcare) to laggards (Energy, Financials, Transportation, REITS). It's already happening right now.
XLE US is down 45% year to date, it is the ultimate laggard ! And you know what? Historical probability of worst laggard to move to the top five leaders of next year is 65%, odds are in our favor.
The ETF showed strong momentum last week with a nice weekly hammer candlestick with strong volume, this is a bullish reversion pattern. Let's wait for confirmation on Monday's open, if it confirms, we are catching the first wave to a nice ride up ! up to recovery and post covid world. The vaccine wont be massively available and massively distributed before mid 2021 I believe, HOWEVER the stock market is merely the second order of the real economy, not the first order! It is the acceleration of the economy, so as soon as the vaccine is being shoot the first person, the widespread reopening will increase tremendously.
Option 101 => acceleration = second order = GAMMA, we want to be long gamma right now => buy calls 3 months on XLE. To save some carry cost, i would suggest a strike at 110% of the current spot, this translate to a roughly 35% Delta. This is quite out of the money but i believe the volatility on this sector is going to up with the spot.
my pick : call 31Mar2021 strike 37. Delta = 24%,
Remember: this strategy makes sense if your portfolio is globally long tech, and please do not risk more than 5% of your portfolio value with the premium. This is not WSB :D
What is your biggest risk right now? With a new vaccine on the way? => A big rotation of smart money from leaders (tech, healthcare) to laggards (Energy, Financials, Transportation, REITS). It's already happening right now.
XLE US is down 45% year to date, it is the ultimate laggard ! And you know what? Historical probability of worst laggard to move to the top five leaders of next year is 65%, odds are in our favor.
The ETF showed strong momentum last week with a nice weekly hammer candlestick with strong volume, this is a bullish reversion pattern. Let's wait for confirmation on Monday's open, if it confirms, we are catching the first wave to a nice ride up ! up to recovery and post covid world. The vaccine wont be massively available and massively distributed before mid 2021 I believe, HOWEVER the stock market is merely the second order of the real economy, not the first order! It is the acceleration of the economy, so as soon as the vaccine is being shoot the first person, the widespread reopening will increase tremendously.
Option 101 => acceleration = second order = GAMMA, we want to be long gamma right now => buy calls 3 months on XLE. To save some carry cost, i would suggest a strike at 110% of the current spot, this translate to a roughly 35% Delta. This is quite out of the money but i believe the volatility on this sector is going to up with the spot.
my pick : call 31Mar2021 strike 37. Delta = 24%,
Remember: this strategy makes sense if your portfolio is globally long tech, and please do not risk more than 5% of your portfolio value with the premium. This is not WSB :D
تعليق
my bad, the greeks for the call Mar21 strike 37 as below:as of 11/16/2020, with last spot 33.88
delta 36%, theta -0.0098 per option (premium mid price at 1.58)
implied vol is 36%, it's attractive given the realized vol at around 40%
تعليق
We are now in the money! Premium is worth 3x the initial price now! Still holding!تم فتح الصفقة
Momentum is still strong, still holding !
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