Strategy Update: All Options (PREMIUM-UNLOCKED)

The following post was initially issued to TLS members on March 16, 2020.

Updating our current position within the correction bear market game-plan.

Given the present highly-emotional (understatement of the century?) market environment, nothing can be ruled out. All options are on the table. That includes a potential trigger of the 2nd circuit breaker in the stock market which would occur at a drop of minus 13% (the -7% circuit breaker halt already triggered immediately after the open…again). Incidentally, the 13% level would put the S&P 500 just shy of the ~2350 level we are eyeing for removing another 10% of our hedges (inverse S&P 500 fund). The index already did trade down to the ~2412 level which we mentioned would prompt us to cover 10% of our hedge as well (as mentioned in posts late last week and in this morning’s WMMR). Thus, we currently stand at a roughly net-long ~20% and, again, will still look to cover an additional portion of our hedge near the ~2350 level.

We also cannot rule out the possibility of the stock market being closed for an extended period of time. In fact, the odds of that becoming a reality are probably significant at this point, especially given the stock market’s non-reaction to the Fed’s bazooka fired yesterday. Obviously, in such a scenario, it is impossible to know how everything will play out, especially in terms of trades settling — and where they would open following such a shutdown. Therefore, reducing one’s gross position makes sense as well given the unprecedented uncertainty.

As always, stay tuned to our DSS posts for further developments — they provide the most current updates to our investment portfolio and outlook.


Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.