The past week was every bit as challenging as we expected—and more…only it was the return of stark reality to investor sentiment rather than continued blind bullishness. Our Supplemental Trades portfolio was hit with a sell-off in energy shares steeper than any week except one in the past year. We canceled the planned adjustment to XLE Friday afternoon when the share price plunged from its opening surge back down to the prior day’s close (before recovering some late in the session).
Our core SPY portfolio, on the other hand, is faring quite well, under the circumstances.
As of Friday’s close, our unrealized loss, at about 3.2% of total capital at risk, was significantly smaller than the week before (as we would normally expect to be the case after another week of time decay). With Thursday’s adjustment trade, we expanded our projected probability of profit the Tuesday before expiration to more than 60%.
Delta, in proportion to capital at risk, was a comfortable 2.3%, and after last week’s adjustment trade, gamma should begin to decrease buy early next week. SPY opened flat this morning, which offers a welcome break from last-week’s day-to-day volatility.
A summary of our open positions is available on the Portfolio page.
XLE again opened up this morning, in range of our upside portfolio risk-management threshold—so we may still get to show members how we can adjust a butterfly hedge to recover some of the loss on the hedge. At the bell Friday, our unrealized loss for our May Supplemental Trades portfolio had increased to more than 13% of total capital at risk, and our expected probability of profit (early expiration week, with no additional entries or adjustments) is now only about 14%. However, the aforementioned adjustment should raise those odds quite a bit.
Beta-weighted portfolio delta heading into this morning’s open was about –0.6% of capital at risk. If that climbs into the 3% range, we’ll go on adjustment watch, in which case I’ll send out an advance Trade Notice.