Monday, November 10, 2014

HK-Shanghai arb and swiss interest rates

I've been sitting in H-shares that are highly discounted to their A-share counterparts for half a year now, ever since the link w/ Shanghai was announced.  Finally got huge good news.  My longs advanced huge and my shorts that are trading at slight premiums to the A-share counterparts even went down, too.  I'm lucky that the H-shares seem to be converging more towards the A-shares than vice versa.  If it had appeared to be the other way around, then I wouldn't be in this trade so heavily.  But most of my positions have doubles or better to go to close the gap w/ the A-shares.

I've been watching the CHF.EUR peg a long time since it seems the SNB is holding the CHF at an artificially low level for a long time.  This hasn't sparked any significant Swiss inflation to date, though.  However, there is an interesing referendum coming up.  The referendum is supposedly unlikely to pass, but speculative flows are obviously coming into the CHF for now, and the IVs on options for the CHF.EUR are spiking.  My thinking is that the SNB may depress interest rates in order to stymie inflows, even if the referendum doesn't end up passing, especially since inflation doesn't appear to be a threat there.  So I entered a large position in the 3-mo Euro Swiss Franc interest rate futures betting on the rates to go negative.  I haven't yet read anywhere about action being taken in this market as a bet on this upcoming event, which I like.  The risk in case I'm wrong seems minimal.  I will consider bets on the EUR.CHF and gold in the future as the date arrives...