Monthly Review (Feb.2020)

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Dear Copiers and Followers,

Wow we got some serious volatility this month, fastest correction move in the recent history of Wallstreet, highest VIX spike since the financial crisis of the 2009 and lower Treasury yield ever for the American markets.

Our portfolio received a big hit with a - 14.68% profit.

This market reset was expected from my side, you can read here my latest Market review from Dec.2019 (Sp500 and Nasdaq analysis)

The choice to reduce stocks exposure to my personal historical minimum below 35%, have been correct, we used the protection from Treasuries (TLT) and gold miners junior (GDXJ) which reached the peak of the last few years.
This worked well to reduce to nearly zero the impact our portfolio suffered due to the on-going correction.

What instead made our portfolio so volitile is Volatility Itself ==> VIX.

When the VIX began to spike, we entered an aggressive Sell position using the VXX (ETN) available on eToro, and we kept piling up sell positions until the last trading day of the month (Friday, 28.02).

I have to say that I did not expect to have such a sharp and quick correction last week which spiked the VIX to its highest levels since the economic crises of the 2009.

You can see the spike on Figure 1


Figure 1: VIX index


I saved a good amount of cash on the side but i choose to put over 70% of it on the VXX which now due to backwardation effect spiking even higher than the VIX on percentage basis.

Once it peaks, it will enter what is called "in contango" with the VIX futures which will collapse the value of the VXX even faster than the VIX on percentage basis.

Historically once the VIX peaks, it can't sustain such high values and is subjected to rapid collapse.
When that happens, I expect from the next week, our "sell options" will recover and produce profits.

The cash generated, will be used to enter again the market once a bottom is confirmed.

Once this particular situation and opportunity is more or less concluded, we will revert to our traditional strategy of selected stock and protection from TLT and GDXJ and ride the recovery of the S&P500 and Nasdaq.



Figure 2: PortFolio Composition



Figure 2 shows our Portfolio structure, the month of January as the preview few month showed a record low content on stocks.

Conclusion

Our Portfolio entered a very volatile phase that will last more or less the whole month of March.
The reason it will experience such volatility is to take advantage of this sharp correction in the best way.
I expect that our portofolio will bottom within this and the next week, and from there, begin a fast recovery due to our Sell positions on the VXX.
The generated cash will be used to gradually enter again the stock markets and ride the way up for the recovery, which might be slower and more volatile than many expect.


Best Regards
Daniele

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