Markets have been on the ropes since late last week when a Silicon Valley Bank press release sparked a run on regional banks.
As Wall Street scrambles to reprice the financial sector -- for what, up until last week, were unforeseen risks -- selling pressure and panic is spreading to Europe and other parts of the world.
Regulators are taking action. And the Fed is taking notice as expectations for future rate hikes plummet.
While Bitcoin and tech stocks have performed exceptionally well through the volatility, cyclical stocks and commodities have been hit hard, with energy and the CRB Index breaking to new lows this week.
What are we to make of all this? Should we be concerned?
Is the regional banking crisis a contained event, or is it about to send reverberations through the broader market and economy?
Whenever we have questions like these, the first place we want to look is the bond market.
We're still in premium-selling mode until the market calms down.
That said, we're not taking any wild risks. This time, we're targeting the relatively tame utility sector and defining our risks. April expiration will become the "front-month" next week, so this delta-neutral spread should pay relatively quickly if the trade works.
I’ve received a few emails over the past few weeks from people who had long calls trades that went their way – a good problem to have. But they had questions about how to manage them.
They hear me often talking about selling half of my calls when they’ve doubled in value, giving my original risk capital back, while also offering a risk-free ride on the remaining half position. This is a Best Practice I frequently employ.
The question is some variation of: “Ok, great advice. But how do I do that if I only purchased a one-lot?”
For the record, I trade a ton of one-lot trades, especially on higher-priced stocks. So I’m very aware of this issue.
To take profits out of a winning long calls trade while still remaining exposed for more upside, there are two options that I prefer:
Ever since the 2-year yield bottomed in Q1 of 2021 Technology stocks have struggled. Growth became the worst place to be.
It was NOT a coincidence that once those rates started to rise in early 2021, the Nasdaq New Highs list peaked, the Nasdaq Advance-Decline line peaked, all the ARK Funds peaked, Chinese internet peaked, Biotech peaked and everyone piled had into SPACs before they all came crashing down.
Because the 2-year yield was rising so fast, and the longer end of the curve couldn't keep up, we got the mother of all yield curve inversions.
The media loves to scare people with it because I think an inverted yield curve has predicted something like 50 of the last 8 recessions.
But now it's bon voyage yield curve inversion. Good riddance!
We're seeing the largest 5-day rate of change in the yield curve since the early 1980s:
