Yesterday the market produced one of the least favorable scenarios for our portfolio construction: a strong rise in the underlying index accompanied by a material increase in implied volatility.
Nasdaq volatility rose by more than one volatility point, a meaningful move in its own right. The far-dated upside wing moved even more sharply: calls became materially more expensive, increasing pressure on the portfolio.
Against that backdrop, the structure required substantial rebalancing to keep directional exposure within its target range. That process also generated additional execution costs through commissions and bid-ask spreads.
Given the combination of a strong market advance, higher volatility, and the need for rapid portfolio rebalancing, I view the day’s result as acceptable under the circumstances.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.
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