This is a dilemma that has hurt me considerably. I tend to be an aggressive buyer of dips and am very wary to sell rallies (all via puts). All of this despite knowing cognitively great corporate earnings are not going to come for a while after even more economic stimulus and stock dilution (and that is probably quite an optimistic projection). I look at the recent capitulation and have been mostly burned recently not selling the rally above 1050. The odds are in my favor being exposed to long puts if recent history is to repeat itself, but why the hell am I so nervous, even in a little position, to be short this market ? Something about missing upward moves (rather than downward ones) creates anxiety for me, and being short through them is even worse than missing them. Obviously I don't feel the same anxiety for missing being short for downward moves, however. Cognitively I look at a broad market with tons of stocks with miniscule PEs (especially in the energy/materials/commodity side of things), a financial sector that looks like it has capitulated, and I have a hard time rationalizing any short position, yet realizing that these index prices are more likely to oscillate than breakout in the near term. In a 5 year time frame I think this is a great time to get long for an investment portfolio. As a 2 day trade though, this may be a great time to short. But I still have anxiety taking that 2 day trade. I write this since this past few years I've been butchered more often than not buying dips. Buying puts has always been filled with fear of selling the bottom - something ego related... thus I've never held for long with any conviction. The most obvious problem here of course is the fact that these trades are discretionary and subject entirely to whims. Risk is controlled as they are long options positions (so stops are built in). Regardless, discretionary trading is a crapshoot in nature -- lets keep discussion away from the point that this is no different than taking a gamble. I realize that. An automated quant system is no different, just no emotion and backtestable past results -- it is still a gamble betting the ideas that worked in the past will continue in the future. Any advice to my difficulty in being short ? This is a situation where the emotional goes against what I know may be cognitively right (selling these rallies). May provoke an interesting discussion into the psychology of bias for trades...
It's not nearly as high probability a trade to buy puts on rallies as it was say a month ago. The moves are smaller now and so the bid/ask spreads can kill your profits. I recommend just shorting the stocks off rallies.
Perhaps you are right. Bid ask spreads are just fine on ES options. The moves are still gigantic.. We just moved around 5-6% today on the S&P. Thats a big move!