Making A Gameplan For Monday

 First, this.

I'm not sure that Jim is calling for a repeat of 1987 or not but what if that is what ends up happening? What would you do? There's no reason not think this out a little bit. I hadn't thought about this sort of scenario happening specifically on Monday. At this point, I don't really need to plan it out cold, I already know. 

When I retweeted Unusual Whales, I said, "If he turns out to be right, sell the hedges, get more long and then be ready to sell what you buy very quickly." The easy answer for me is sell SH. Increasing net long exposure that way isn't difficult for me. I have bought panic before but it is harder to do. 

Most likely, I would sell SH and flip the dollars into an S&P 500 ETF. If we jumped much higher very quickly, I would plan on selling that S&P ETF I just bought. I don't think that is actually how it will play out but I want to be ready. 

I think the best outcome for Monday would be to close higher than it opens as long as the moves aren't huge. Down a percent or less at the open and then closing at some higher level than that without evidence of a buying panic would be constructive. Opening down 5% and closing up a ton would be a sign of a lot of emotion still in the market. Opening 5% higher and staying up would be a buying panic too. 

I believe a couple of flattish days with a slight upside bias would be evidence of emotional exhaustion which I think would be positive. 

An important theme underlying this post is that I am not trying to predict anything. If such and such happens, what would I do? I am not planning to increase net long exposure if we get to down 15%. Over the years I've talked about down a little versus down a lot. Well, 15% is like nebulous middle ground that I guess I don't think of as being a lot. 

If from here, we trickle down slowly toward 20% and beyond, selling SH would probably still be the call for me but I wouldn't be as quick to buy. A trickle down from here seems to be less emotional which I would take as having greater risk of a large decline. 

Finally, if everything rips higher and just keeps on ripping, I'd be inclined to let SH and BTAL hedge less and less of the portfolio as the other stuff went up. 

I mentioned in passing the other day that buying panic is difficult to do. Gameplanning ahead of time makes it easier. If the right gameplan for you is to just hold on no matter what, that is valid but I would take a moment to remind yourself why that is your right gameplan to make it easier to stick with when the time comes. 

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