Friday, August 27, 2010

TSLA option arb

I love risk-free money.  Because I can short TSLA in my interactivebrokers account, I shorted TSLA while buying the synthetic long with options (long calls and short puts with the same strike and expiration) to lock up .90 risk-free upon expiration of Sept options and 2.70 upon expiration of the Dec options all without using that much margin.  If TSLA becomes more widely shortable before then, the options should come back into parity and I can take my gains even sooner.

Wednesday, August 25, 2010

Several bearish factors weighing on market looking forward

The longer I trade, the less I'm willing to take longer-term views on the overall market (different concept from having the guts to go for big gains on individual trades), but aside from the economic data that's never been hot, which is all based off a downtrending housing market with plenty of inventory overhang still out there, there are a number of factors which indicate that we may have another pretty good equity downswing soon.

1)  The yen, a borrowed currency in the carry trade, is pushing highs.  It would be nice to see confirmation with the USD, the other major low-interest-rate currency higher, as well, but what can you do.
2)  Some technician has come up with this thing called the "Hindenburg Omen," which we've realized lately.  Look it up.  I'm not attaching a whole lot of weight to it, but it's another factor.  I believe that some technical indicators withstand the test of time.
3)  T-bonds are mad strong.  Coupled with strong gold, the market is confirming a deflationary theme, caused by an increased money supply overwhelmed with even more greatly diminished money velocity, bringing about decreasing prices, as in the US's first great depression.
4)  The absurd contango in VIX futures.
5)  Imminent bankruptcy by many governmental agencies and public pension funds.

The riskier bonds, for which I use LQD and HYG as proxies, aren't weak, which means they are not pointing to a collapse.  It would be nice to see the corporate bond spread widen a bit more as another sign of risk aversion, but you'll rarely have every factor lined up in advance of a major market move.

So how does this knowledge inform my trading?  I believe market crashes are things a trader can profit from best by waiting for the panic to start rolling first.  I'm not anticipating panic before it occurs, but I'm ready to jump aboard at the first signs of it.

After taking a bit of heat on the long Aug VIX, short Sept VIX trade, I substituted market puts once the Aug VIX expired and I've been making money virtually every day for the last week on my market neutral paired trade.  The VXX ETN's beginning to sell Sept VIX futures every day after Aug expiration day has probably helped.

Sunday, August 15, 2010


Pork prices are going to the moon

It'll be on my radar for good long or short entries going forward.

Wheat spread - Minneapolis against Chicago

Minneapolis wheat is generally higher quality than Chicago wheat, as reflected in the long-term spread in which Chicago normally trades at a discount.

Right now the Dec contract spread is bouncing off of fairly abnormal levels:

Looks like a good time to jump in and risk a little bit on the spread.  Always remember that spreads can get way more extreme than you can imagine.

Tuesday, August 10, 2010


IBM has been in a tight range for over half a year now, bringing the implied volatility on most of its options below 20%. It may be ready to pop higher any day now. I'm not bullish on the market overall, but IBM's fundamentals are solid and can make a nice low risk trade on the long side of your long/short book, should the stock continue wafting near the highs before breaking.

If/when IBM pops above 132.50 and 133, and especially if the stock can't break the recent lows around 128.50, I'll probably be looking to pick up Jan 2011 calls at ~140 strike, with IVs around 20%. Great risk/reward and great cheap time premium on calls that can be obtained possibly right when the stock starts a new upleg.

Switched out my SPY puts for a long Aug VIX

the difference between Aug and Sept VIX is now 4, meaning that my hedge mentioned in Uptrending Equity: Switched my short VIX over a month has suffered a bit. In order to reduce the time drain on the hedge and reduce my acct margin requirements, I swapped my market puts for a long Aug VIX, now that Aug VIX more or less matches the VIX index and the difference between Aug and Sept is so large. Once Aug expires I can always buy some puts again.

Difference btw commodities and other asset classes in selling the (good) news

So I reflected a bit more on the idea of "selling the news" in light of the limit up then limit down move in wheat. I hypothesize that selling the news is more often more effective in commodities than other asset classes in which all participants are speculators. This is because for commodities, there are hedgers whose primary concern is hedging inventory at prices better than what they were last at (in general suffering from bad trading psychology), regardless of news that may impact demand/supply further down the road. So if news is released that changes the demand/supply forecast down the road, speculators may react but be met w/ resistance from hedgers who don't yet care. When the juice runs out on the speculator-induced move, they are fighting each other for the best prices on the reversal. This phenomena isn't as present in other asset classes such as equities, where news is supposed to be quickly incorporated into everyone's forecast of the future, about which all market participants are concerned, thus limiting the resistance.

Just a thought.

Friday, August 6, 2010

Market's lessons in wheat

Wheat opened up a bit and quickly sold off. I took my small loss first thing in the morning, thankfully. Wheat provided a couple good intraday short setups and finished limit down. So while the limit up yesterday would have been more telling had it not come on news, my belief that the news was so significant that it couldn't price in a one-day limit up move proved completely wrong. That's the markets for ya. Either way, wheat is making big moves that agile traders should be loving right now.

Thursday, August 5, 2010

Wheat -785.75

As of the time of this writing, a massive bid came up to the limit up price in wheat (785.75). It should open up higher tomorrow, good chance it'll be limit up tomorrow.


I'm a little slow to start looking at it, but wheat is becoming quite active.

I'll be looking for great setups to be leaning on the long side for now. Graph of wheat and a measure of its contango:'W%201!')-('W%205!')&o=%3D('W%201!')&a=V:60&z=800x550&d=medium&b=bar&st=

Wednesday, August 4, 2010

LIA/PRS.MC arb no longer as sweet

Deal terms from what I posted about earlier at Uptrending Equity: Obscure merger arb have changed today to this:

I don't have time right now to figure out if there is any arb remaining under these terms. However, the price action of LIA would tell me to be out of at least the short LIA leg of the trade for now.