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Tuesday, May 14, 2013

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.

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