Sometimes, the market does just the opposite of what you hoped it would, and you are faced with the decision to hang on and hope it will reverse itself, or accept that you guessed wrong, and close out your position and move on to something else.
That will be our subject today.
Knowing When to Bite the Bullet
Kenny Rogers said it well – “You’ve got to know when to walk away and know when to run.” We set up demonstration portfolio to trade diagonal spreads on an ETP called SVXY. We were betting that the stock would go up. In each of the last two years, SVXY had doubled in value. Its inverse, VXX, had fallen from a split-adjusted $3000+ to under $30 over the past 5 years, making it just about the biggest dog on the entire stock exchange (selling it short would have made anyone a bundle over that time period). We felt comfortable being long (i.e., the equivalent of owning stock) in something that would do just the opposite of VXX.
In our demonstration portfolio, we decided to . . .