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Position Building: Week 5
Week 1 | Week 2 | Week 3 | Week 4Right now, the only confident assessment one can make is that the market is not going to stay put. It's very over sold, and we expect that it will move sharply up in the short-term. If not, it's going to move lower. How's that for rocket science? But that's all we really need to know. The fact is, when the market sells off like it has, it becomes positioned for anything but staying where it is.
Therefore, as we examine our position in SPY, we see no need to complicate it. If SPY goes lower, we'll be much better off than if we had been in a well-diversified equity portfolio. If SPY moves higher, we'll start to recoup and have a good chance of making the portfolio whole again... not that it was ever really hurting.
You'll notice that with this portfolio we are interested in relative performance. We are not trying to do something terribly unlike what the markets would do. Why would we want to? The markets have made many patient people multi-millionaires. We just don't want to participate fully in the unpleasant declines. Moreover, when the market hits a pothole, we want to be in a position to capitalize as we did when we bought the SPY 130 call (see week 4). The question we enjoy addressing is, "How much can we make risking very little?"
The figure below shows that we're sitting tight in the calendar spread. Price appears to be returning from its trip many standard deviations away. Likewise, volatility is settling down for now. The bulk of the capital is still earning interest.
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This is not a solicitation or recommendation to buy any securities, options or financial instruments of any type. Any information in this email is for educational purposes only.
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Position Building: Week 5 
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