31 May 2013 - Trade and view updates

A very quick wrap-up on performance of trades from my previous post. I'll follow up this weekend with a longer post regarding views and thoughts.

I exited S&P at 1680, believing we were in for a correction. This duly occurred - initially spurred by Bernanke's Congress testimony.

Nikkei, which I had exited at 14800 anticipating a sharp correction, actually continued to steamroll up to almost 16000 before an extremely volatile week of trading has left it around the 13400 mark currently.

The 19th Jun 1.28 EURUSD puts have been fairly profitable so far as I have been able to trade the gamma on them, however I am still hoping for a break of 1.28 before expiry to counteract the theta I'm going to end up paying on them.

Hang-Seng/ASX continues to profit, peaking at a ratio of 4.6 (currently 4.57) up from entry ratio of 4.15. I see no reason why this trend should halt here, though it's worth noting that 4.6 has been roughly the average ratio since 2009.

Gold has been a manic ride. It certainly hasn't got anywhere near my initial targets as it continues to exhibit inverse correlation with stocks. I exited my position at 1380 via trailing stop, and until we resume the upward climb in stocks I'm reluctant to re-short this.

USDJPY looks like I called it to a tee, selling the 104 calls and having it reach a peak of 103.60ish before tumbling 3 figures. Unfortunately, I had put in a stop at 1.0350 which I then left on by accident as USDJPY fell, thus cutting the profits of the trade significantly. Lesson learned no. 1: don't bother hedging before the strike for short term options unless you have changed your fundamental view. Lesson learned no. 2: put a stop loss on your stop loss.

14 May 2013 - Trade and view updates

It's been a little while since my last post. Here's an update on my positions, and new ones I've put on since.

First, long SPX and long Nikkei which have both worked a treat. The underlying rationale for SPX was the strength of American economic figures as well as the P/E analysis I performed earlier this year which suggested a 'fair' value for SPX was around 2.1k. As I said at the time, even if that reading was ambitious, I much preferred being long at current valuations - and continue to hold the position. I exited my Nikkei long at around 14800 though as I felt the market was overdue for a correction - so far I'm wrong about this.

Second, short EURUSD via Jun 19 1.28 puts. This has worked thanks to broad USD strength and not EUR specific weakness which I expected post-ECB. I will continue to hold this position as I think it complements long SPX, especially as a guard against Euro tail risk (which the market seems to currently be pricing as non-existent - OATS and BTPs prime examples).

Third, long Hang Seng vs short ASX has worked quite well. I entered the position at a ratio of 4.29 and it is currently at 4.41. The ratio has been as high as 4.5 recently, but the collapse in AUDUSD seems to be propping up ASX, relatively speaking. I continue to hold this position.

As for new trades, I am now short gold. With stock markets providing such headline-grabbing numbers I expect demand for gold to slump, though Asian retail is always a bit of a wild card. The trend of USD strength and Fed tightening fears also add some tailwind to the short in my opinion. Entry at 1442, stop loss 1500, target 1300.

Finally, after being long USDJPY for a long time I exited at 101.75. It is now trading around 102.40, and I've just sold some 2 week 104 calls for 50 pips. I like being short delta here for macro and market action reasons. On the macro side, with the Nikkei producing exceptional returns and stalwarts like Sony and Toyota reporting well, I expect stronger inflows of capital into Japan both from foreign investors and especially as domestic investors repatriate their money. On the market action side, there is a large hedge fund long presence in USDJPY. At some point these funds will start unwinding their positions (and game theoretically, it is optimal they do this sooner rather than later if they are aware of their competitors' positions) which could lead to a fairly sharp reversal. USDJPY options are also priced at high vols of around 13 in the 2 week, so I prefer selling calls to buying puts. Putting myself in a position of uncapped losses against a rising knife is definitely a highly risky proposition, so anyone looking to replicate this should have a solid exit plan in mind and be very aware of how much of their capital they are willing to maximally risk.

8 May 2013 - Trading Updates

So it seems the DAX Straddle trade was hedged out for a small loss (pretty much flat, really).

Sold 3/4 at 7930
Sold 1/4 at 8000
Average Selling Price = 7947.5

Long DAX 7800 Straddles @ 155.9 so this equates to a loss of 155.9 - 147.5 = 8.4 points.

I guess this didn't work out too well as I expected the market to be disappointed (this was my base case) and as a result, I hedged too early.

As for the gold miners trade I have on:

Short 1656 GDX @ $30.19 (Closed today at $30.44 / +0.83%) - P/L of -$414
Short 234 DUST @ $85.47 (Closed today at $80 / -6.40%) - P/L of $1280
Net P/L of $866 (position sized for a $100,000 trading account)

Borrowing costs were 9% and 1% on DUST and GDX respectively which (with just mental calculations) seems like it totals up to ~$50 for the week. The difference in daily changes exemplifies daily decay working in our favor. If DUST did not rebalance daily, we would expect a change of 0.83% * -3 = -2.50% instead of -6.40% (assuming both ETFs track the same underlying index, which may cause some slight deviations).

Note though that this isn't without risk though. When the market moves strongly in one direction without chopping about, expect huge losses and exposures to rack up for this strategy.

2 May 2013 - EUR puts

Picked up some 19th Jun 1.28 EUR puts for 38 pips after the ECB rate came out. The market's moved nicely in my direction since then but regardless of the short term action I like the trade as I think EUR continues to come under carry-based selling pressure over the month ahead.

On that theme I'm considering ideas such as shorting EUR vs AUD and TRY and other high yielders.

2 May 2013 - DAX Straddle Update

Will be hedging the rest of this  position which is pretty much delta 1 now at above 8000.

30 April 2013 - DAX Straddle Update

Missed the highs of 7960 this morning on the DAX but would probably scalp some gamma here at 7930. The straddles are showing me a delta of (87 - 13) = 74 here so would probably sell this entire amount of DAX and be delta neutral. Sitting on a pretty nice profit ATM as these straddles are almost at the breakeven and we still have FOMC tomorrow and the big ECB disappointment/surprise on Thursday.

29 April 2013 - Daily Thoughts

First things first - the GBPUSD short did not pan out as GDP beat expectations. Fortunately I had shorted at a good level with a tight stop (my standard on most binary events), and in only half size, the trade hasn't cost me much.

USDJPY has bounced right off the 100 barrier and down a couple of figures to trade as low as 97.34 today. At these levels I'm intrigued by selling puts around the 95 strike - for example, the 19th June 95 put is sellable for 66 pips, putting a breakeven at 94.34. I can't see USDJPY erasing all the gains made since the Kuroda-bomb.

In other events global equities are performing strongly today - probably over the news of formation of a coalition government in Italy. We have a stacked week of data ahead of us: Fed, ECB, and NFP 3 days in a row. It's gonna be a bumpy ride!