Wonder how a pro options trader sorts different trades?
Strategic vs Tactical
Like w/most things in life, no one-size-fits-all approach
Using both strategic & tactical is KEY to your PnL
& allowed us to turn bullish stocks while holding an overall bearish view
Let’s explore☟
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➠ NIMBLENESS PAYS OFF
Markets are an infinite game of expansion & contraction
Asset valuations continuously growing & weakening
Driven by a complex array of factors
Amid this waxing & waning, you must be agile enough to hold a long-term strategic view
While simultaneously trying to tactically capitalize on moves that differ from your original trade thesis
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So, now you may be looking for the #ELI5 (explain like I’m 5) difference btw tactical & strategic approaches.
Yeah?
I got you
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➠ CHESS VS CHECKERS
Strategic investing can be like playing chess
You think ahead & carefully plan your moves
Whereas tactical investing can be more like playing checkers
React to what’s happening that moment
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#TLDR
Strategic positions are the foundational assets you want to hold over a long time
Tactical positions are overlayed on top, allowing you to keep on your foundational positions
Thus, no need to sell in the face of the first downward price pressure
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So, as part of our approach, we continuously looking for opportunities to improve the performance of our strategic, long-term investments.
But w/short term POV
This is what taking a tactical approach is all about
These tactical moves may be based on what you observe happening w/the asset @ hand
Or what you feel is coming down the pipeline.
A benefit of being in tune w/markets you’re already invested in for the long term
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➠ CHANGES IN SKEW
Now, you may be wondering about what we said earlier on turning tactically bullish
We think after a phase of lower valuations in #stocks, might be time for a bounce in #SP500
Let’s dig into some evidence
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➠ DOWNSIDE PROTECTION GETTING CHEAP
$SPX consolidating near recent lows
#Dollar retreating from recent highs
& we are seeing downside protection cheapening up again.
Tends to be a sign investors are monetizing hedges.
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#Skew has dropped back considerably.
Seen from the SDEX Index –
(h/t @themarketear )
Could be sign that a tactical rally is due in stocks.
What else?
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➠ BEARISH EXHAUSTION IN FIXED STRIKE VOLS
Over last few days, SPX has chopped near recent lows of 3950.
A key support zone, technically speaking.
So you’d expect #vols & skew to remain firm until we move from this inflection point.
However, we’ve seen fixed strike SPX surface showing downside fear diminishing
Why’s this happening?
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➠ MONETIZATION OF HEDGES
𝞂 Likely for 1 of 2 reasons:
1) Monetization of hedges
2) Dealers marking down their #puts that have been taken short w/put skew not realizing
All in all, this type of price action makes us tactically more bullish & suggests may be some upside coming
… that’s a wrap!
Hope this was helpful to understand how to use both strategic & tactical styles.
What does your trading style look like?
Let us know in the replies!
#options #trading #tactics #optionstrading #OptionStrategy
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Thank you for making it all the way through this blog!
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Cheers!
