Time and Volatility Outweighed a Falling Market
The market moved against the position, yet the account still closed the day positive. On Monday the Nasdaq-100 fell 0.7%, but on our scale the volatility regime remained Calm.
The account turned positive in the first hour of trading. Time and volatility did the main work. Time decay worked strongly in the position's favor throughout the day, and implied volatility on the position declined, which also provided strong support for short volatility.
Direction worked against us. The market's decline pulled hard on the position in the opposite direction, and the sharpness of the move added a modest amount of pressure. By the close, however, the supporting forces proved stronger: time and volatility outweighed the pressure from the market.
What we are watching next. Banks open the earnings season today. On Wednesday September consumer inflation data is released, and in the evening the Fed publishes the Beige Book. Thursday brings producer prices and advance retail sales. These releases could add sharpness to the market and shift volatility. If VIX/VIX3M closes above 0.85, the regime on our scale moves to Normal. The main risk is a sharp move on the data that makes options more expensive.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.
← All Editor’s Notes