A return to neutrality
The session of October 15 unfolded under conditions that were far from ordinary. The market opened with a sharp decline amid elevated volatility, then recovered nearly all of the morning's loss over the course of the day.
At the height of the decline, as volatility peaked, the position was brought back to delta neutrality. The decision was taken within the strategy's risk-management rules: in such a market, directional exposure ceases to be controllable, and limiting further loss takes priority. The cost of that decision emerged in the afternoon, when the neutral position did not participate in the recovery and the loss accumulated up to the rebalancing remained realized.
A drawdown of this magnitude lies beyond what the author regards as acceptable for the strategy, and the session is treated as such. It nonetheless reflects a choice in favor of risk discipline in an unusual market, not a departure from the rules.
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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