The S&P has gone nowhere since Friday, and the VIX is flat as well—but the position we opened Friday morning is showing a moderate unrealized loss. The culprit, quite simply, is a half-point drop in the average implied volatility for SPY options. The premium in both the March and the April contracts, both on average and at the strikes used for our one open position, has fallen, with the drop in implied volatility reflected more in the price of our long, April contracts than in the short, March positions.
In trading right after today’s stock-market close, we were looking at a paper loss of about 2%. Delta bias has increased from approximately +1.6% of capital at risk to about +2.3%, and vega is up as well, from about 5.7% of capital at risk to just over 6.2%. Nevertheless, our projected expiration breakevens have remained about the same, as has probability of profit.
We’re now looking at projected risk-management price thresholds at approximately SPY $134.20 and $138.50—but because it’s still early in the cycle, we could get a signal to open another position anywhere below about $135.50 or above approximately $137.75. At this point, the small current unrealized loss on this one position is of little concern…We have more than three weeks left until March expiration and three-quarters of our capital safe in cash but ready to be put to use.