Markets. Putting my bet out there.

Oh what to do. I’ve been pretty long tech for a while. The last week has been brutal though with my portfolio dropping 10% from highs. I’ve only just put on my hedges today. Sold short 2000 shares of QQQ as well as a few OTM puts for Feb and Apr.

The hedges saved me a bit of money today, but still not enough to offset the loss of my overall long tech position.

I’m sure we’ve all been curious about what capitulated such a sharp decline so fast. I feel like pundit discussions aren’t very satisfying. Inflation? rising wages? Hardly seem fit to justify  such a steep decline.

Maybe that data starting it, but I feel like something else must have magnified it to the drop we’re seeing. I have no basis of saying this, but I imagine it’s a lack of humans. I feel like the only humans exiting will be the ones that decided to lock in some profit after the run, but even they would only get spooked after sharp spiking of a couple risk-parity algos rebalancing for hiring vol and maybe even some stop losses getting triggered. XIV probably acted as the catalyst for that risk parity rebalance.

If that’s the case, there should be a few more days of bot reduction ahead of us. I’ve heard that instead of using just a spot VIX to determine Vol, they have a look back window. Who knows what the various players are using. 1 month? 2 months? 3? 6?. Whatver the case, the last 5 days of spiked Vol still are a minority in that average. As the low vol days drop out of the window, that increasing average might continue to necessitate more RP algos further reduce positions. As much as it pains me to “trade” against such strong fundamentals, I’ve got to place more short QQQ positions. I’ve played with various possible VIX look-back windows and have decided the following:

Risk Parity Play Planned on Feb 9

Hopefully, as the VIX spike falls off the look-back window, this means algos will add to their positions. Assuming no further terrible news, VIX should slowly decay back  to lower levels. That being said, until the end of February, the falling off of the lower VIX days of January from the look-back Window means that the average VIX for the algo will still rise even if the day’s VIX is dropping. Not buying the dip till March starts.

That’s my call. put it out there. Let’s see how it goes.

Short till Feb 26

QQQ Calls for the Open of Feb 27, exit at close.

Start buying dip at March 1.

Let’s see how dumb I look.

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