Since we closed out our January positions this week, the lede for this Update normally would be a quick review of the month’s results. I stopped posting stand-alone monthly performance reviews a long time ago, in an effort to help members stay focused on what’s important: long-term risk-adjusted returns. But as I thought about how we handled this cycle, and how that compares to last month’s trading and results, I saw a number of valuable lessons about risk-management that are worth exploring in depth.
That will be the subject of a rare return of the Monthly Review, which I’m planning for the next post. But first, the status of our current portfolio:
A week after we opened our first February position, we were showing a 3.5% unrealized return on total capital at risk. That translates to a Model Portfolio return of just under 1.8%. And with implied volatility back where it was a week ago (after taking a dip Tuesday and again on Thursday), our portfolio breakevens were $0.20 wider at the bell Friday than they were upon entering the second Feb/Mar double-calendar Thursday afternoon. Yesterday’s drop in SPY has, naturally, increased our delta bias slightly—but we’re still a long way from the latest projected downside risk-management price threshold, and a bit further from the predicted upside adjustment point.
Our portfolio P/L curves (current in white, expiration in red) have changed little since Thursday, except for the aforementioned boost from higher implied vol and the expected slow increase in negative gamma (–1.06% of capital at risk at Friday’s close, vs. –1.04% Thursday):
As shown in the analysis table, our projected risk-management price thresholds are approximately SPY $125.30 and $133. But with enough cash available for another core position, we could get an entry signal on a breakout over $131, or on a failure of support at Friday’s low near $127.70.