To sell into strength and buy into weakness is the tantalizing chalice of gold, and it is difficult to do; for a trader must do so when appearances fool ordinary mortals. Moreover, to keep a balanced inventory of short, decaying options requires that delta be offset with long options or stock in order to protect against the wicked challenge of surging prices. Computers do the job for the market makers. To hold a position balanced requires patience and mechanical rules. For ordinary souls to sell strength and buy weakness presents quite a challenge.
For example, consider this chart of the S and P 500 at 10:33 AM, PST and the questions: What should one do? Where is the weakness? Where is the strength?
Should one buy a long call– when clearly the best time to buy was 4 hours ago– if one is suddenly short more delta than demanded by one’s rules? There are only 5 points or so to the 10-day value area high and 13 points to the most recent high price of 1849. The upside reward seems limited. We’d prefer to do nothing, but rules exist to save ourselves from excessive cogitation at crucial moments.
To sell valiantly into strength and buy intrepidly into weakness is the Holy Grail of trading. As such, it is impossible in every instance.
Rather, we act more like baseball pitchers, who hurl the ball, knowing it can be struck for a home run.
We pick our spots and throw the ball anyway because we must. If they hit our best stuff, we reload and throw again. The goal is always the same: stay in the game and prosper.