If lightning strikes your house once, you fully accept the rarity of the event, assess the damage and do your best to move on. If your house gets struck again, however, you start to question the nature of lighting, and you do all you can to prepare for when it happens again. Is the nature of lightning any different now? No, what’s different is how you feel about it. Last Friday before the French election, many traders geared up for what they felt would be a 3rd lightning strike (shorts piled in, longs pulled out), but come Sunday we all came to realize that getting struck by lightning is still rare and most of the time the expected does end up happening.
The Heat Gauge was pretty hot on Friday, but overall volume fell, so installing a protective lightning rod on the roof of the house was not very high up on the big boys’ agenda. Many folks are saying that staying long over the weekend was a pure gamble. When it comes to risk in trading options we follow one simple rule: Don’t buy more premium that you can afford to lose. By expecting the unexpected and limiting our position size we can follow our signals without letting our emotions get in the way. And in the event of that real 3rd lightning strike (you’ll never really see it coming), our account will stay intact to trade another day. -MD
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