up 1-2% pre-open. Mortgage players have more good news NLY came out and said there is no margin call issues, share buybacks too. The whole space is rallying again. IWM seems to run ahead of other indices.
Corona: US. tops 400k, altho the rate is slowing. That is the news which has been driving the market.
Corona stocks (GPS, UAL, DRI, MAC, APO, CAKE, RCL, BA, HLT, BX, KSS, M, CCL, F, C, FITB + 5% - 12%) and Mortgage REITs (MITT, TRTX, NRZ, NLY, ACRE, AI + 20%+) are leading the way. Very few stocks were even weak. The breadth is close to 5:1. BKLN/HYG are up 1-1.5%. The fed's action was really timely.
Portfolio:
BIIB, NFLX, and AMZN are basically doing nothing while the corona and REITs are soaring. The portfolio is effectively short. BIIB and NFLX calls should be closed because there does not seem much upside to them. Closing BIIB/NFLX against QQQs.
Given how much index vols came in, it may make sense to turn the portfolio into a reverse dispersion where long index (more than 1 to 1) vs. stocks which have very high vols.
Timing in trading stocks are critical: the stocks trade in waves or follow certain kind of rhythm. Good idea + timing is everything!
The portfolio suffered two consecutive days of big losses:
- Lessons & lessons: Now, all I had was the lessons + the sleepless nights:)
- One positive note was the discovery of some of the mortgage REITs, and MSR servicers.
- The positions were made sense when it was first set up, but over-stayed its welcome.
- All the stocks were 100% correlated and went down together. When the trade is set up to long cheaper vol names, which happened to be the stocks least affected by the corona virus. During the market bounce, good names bounced along with the bad, but the vol really came in hard, with high vol names have more room to fall, therefore, benefiting the trade.
- When the market tanked again, it was also favorable because the good names did not tank as much.
- During the latest rally of past 3 days, the worst names had their biggest move. Since the vols already had fallen (no room to fall), it was all negative delta.
- Also the rally happened when AMZN, NFLX, BIIB were already sitting on the top of the chart. They were not about to make new highs. As such, they were like cash. The short side was a naked short as it turned out.
- Even if the idea makes sense, the timing of the trade needs to be optimal: figuring out how much expectations are baked into the stocks.
- The other blinding issue is that the market value of the long gives the impression that it is market neutral, but not in reality.
- Also, admittedly I expect the market to go down.
