Damsel in Distress! RSX

Good Day Traders,

What an interesting week. WTI Crude dropped and then bounced into the end of the week. There was a continuation of the collapse in the Russian Ruble, and then the FED came in and blasted every index short out of the water.

In the midst of all this, I found myself at the end of the week positive in all of my short index volatility positions, and I was able to close a long trade in RSX. I am still inside out on my short position in Oil volatility via OVX, but I still have time for those to play out.

As for RSX, I had a trade earlier in the year that I though I would take a shot at repeating.

Mother Russia is my Damsel in Distress.

Above is a one year chart of RSX. The highlighted area is from March of this year. What prompted me at the time to want to take a long position in a down trend, was that the collapse of the Russian stock market at the time became a front page news story in non-financial media. I took a small long position by selling a put spread to buy calls. I was able to close the trade a couple of days later with a profit.

Fast forward to November... Whenever financial stories become part of the approved AP drivel that's allowed to be discussed in mass media, I get curious. It seems that nobody is better than calling a bottom in securities than ABC.

After this last severe downdraft, concurrent with the slide in the price of crude oil, the Russian economy again became approved by the AP as a disaster story drama piece for American consumption. Here's How I played it:

I sold a put spread far out of the money to finance the purchase of an at the money call. I did not know for sure when the bounce would come, but I was pretty sure that it would. I entered the trade with the options expiring in 13 months on January of 2016. There was a ton of liquidity the night I placed the trade, even in the LEAPs. I placed the trade on a single entry ticket to reduce commissions and because the spread combined on all three legs of the trade was around $.05. I got filled 2 cents below mid prices the second I clicked the mouse.

My primary risk management in this trade is duration. I had 13 months to be right, I just chose to close it in three days. The trade concept is entirely speculative based on anecdotes in mass media. The execution is based on what looked like capitulation to me on December 15 on the RSX chart, characterized by 2.5 times the average volume, and the gap down over the previous session.

So in summary, Long RSX for $1.80 on 15 December, closed for $3.40 on 18 December, thus rescuing my Damsel in Distress.

Good luck trading next week to everybody, and happy holidays to you and your families.
STT