Re: Doug's log
Posted: Fri Aug 05, 2011 12:00 pm
Exciting times indeed. The Chinese curse is upon us. But human nature still applies so we can still play and win if we don't act too much like the herd. I made a couple bets so far, one on shorting X at the open (that steel short) which has been both green and red so far - it's crazy day, and shorting VXX around noon, betting on some mean reversion, which is looking very nice at the moment.
I managed to catch VXX near the peak at 32 something, and my target there is about 28 (200 shares worth) on which I will close the trade almost no matter what. The X I expect to do OK over a longer term, so I'm not getting worried as that one changes from green to red and back. Boy should I ever have held my shorts on FXI (chinese index, mostly banks). Also BAC, which I didn't think could possibly spend much time under $10 before the government stepped in (or some big money saying, hey, it's trading under (cooked) book value!). Live and learn - figuring out where the denial really is might be key to some of this. Of course, I missed my shot to sell my short term PMs at a nice profit yesterday, but they'll be back -- this is the one case I'll feel OK about changing a trade into an investment (or a longer term trade). I won't double down though until after I see a daily close in the green, especially on silver - it tends to take longer to recover from a burning than gold. At the moment, we're seeing "dead cat bounce", "mean reversion" or whatever else you want to call that -- and EE would call it "ringing and overshoot" which is how I model it. In fact, I judge the emotional state of the market by the Q and F implied said signal. Both change with emotion, in general F goes up with nervousness, and so does Q, but Q seems to be more related to the violence (%/time) of the previous move.
More later.
I'm not sure where I should put this, maybe homework, but things are rushed now, maybe I'll move it later.
The VXX (standin for the VIX) is touted as a measure of "volatility", but as you can see in the plot below, that's not at all what it really is. In theory it measures the price of buying "insurance" in the form of options, or options premiums. In times of uncertainty, the price of insurance should be up -- no matter which way the uncertainty. But this plot against the SPY (market as a whole) reveals quite a bias on which type of insurance anyone ever seems to want. I post this for the logical people among us who might figure that in "market speak" volatility means the dictionary definition, risk means risk, and uncertainty means uncertainty when it comes to human beings. As you can see the VIX perfecly inverse mirror the market - well, is is a measure of volatility (eg change) or a measure of fear of change in a particular direction? The answer is in this plot, which looks a lot like this on any timescale. This speaks to a big skew in perception vs reality, and in calls vs puts out there, does it not? this looks more like a super-inverse SPY fund, like SPXU on steroids, not a measure of uncertainty (which should not have a directional bias).
I drew some trend lines on the X plot, if it hits the top one and bounces, I double down on that short. On more refined analysis, I see the parabolic drop, so this may not have been a great trade, I was late to this party and should have done it when I called it (before the big tankage!). He who is lost, hesitates, I suppose. Courage!
By the way, I picked up enough ZSL to hedge about half my silver (which is about 1/4 the dollar value). So, if silver goes down for awhile, I show half as much loss, and if it goes up and seems like going up, well, I sell the ZSL at a loss smaller than my silver gains. Not perfect, just a hedge. I'm longer term bullish on silver, but for the short term....
Going into the close. Whoa, the only way I could document today would be with a movie. What a $%^# day, but I made money again. Lessee, did all the stuff above, closed the short on the VXX, since I'd made enough - and anytime you can make a few percent (in this case a couple hundred bucks) on a small trade in mere hours, you take the money and run, understand? Yeah, in the woulda coulda world it might have been better to hold, but just like that "volatility" thing above -- there's a skew in what gets looked at in hindsight too. I bought some PG in a dip - for the long term account, got some ZSL in both (not enough to fully hedge silver) and CEF went up more than ZSL went down -- there's some arbitrage available there in the timing, and picked up a decent chunk of TMV at about a buck less than it is this minute. Doubled down on the short of X, and....I dunno -- TGIF, it's miller time or very soon, and I'm glad this week is over - again.
Physics this weekend, forget this stuff. Some guy said today "no one can make money in this, get lucky or go fishing". Well, I don't want to come off boasting, but I kind of doubt this was luck. Moves got made fast, while watching a huge number of balls in the air (both my holdings statements doubled in length today) -- and every trade closed green, except me selling half my MCHP today (maybe this one shows up later on woulda coulda but it was getting near my pain limit).
Have a nice weekend, we'll see if the US is downgraded over the weekend. Sad to say, that would make me considerable money if not immediately followed by a statement from the bernanke that said QE3 was going to buy bonds massively before I can sell TMV....
I'm going to go play in the lab for a change, as soon as I re-stock the beer stash.
I managed to catch VXX near the peak at 32 something, and my target there is about 28 (200 shares worth) on which I will close the trade almost no matter what. The X I expect to do OK over a longer term, so I'm not getting worried as that one changes from green to red and back. Boy should I ever have held my shorts on FXI (chinese index, mostly banks). Also BAC, which I didn't think could possibly spend much time under $10 before the government stepped in (or some big money saying, hey, it's trading under (cooked) book value!). Live and learn - figuring out where the denial really is might be key to some of this. Of course, I missed my shot to sell my short term PMs at a nice profit yesterday, but they'll be back -- this is the one case I'll feel OK about changing a trade into an investment (or a longer term trade). I won't double down though until after I see a daily close in the green, especially on silver - it tends to take longer to recover from a burning than gold. At the moment, we're seeing "dead cat bounce", "mean reversion" or whatever else you want to call that -- and EE would call it "ringing and overshoot" which is how I model it. In fact, I judge the emotional state of the market by the Q and F implied said signal. Both change with emotion, in general F goes up with nervousness, and so does Q, but Q seems to be more related to the violence (%/time) of the previous move.
More later.
I'm not sure where I should put this, maybe homework, but things are rushed now, maybe I'll move it later.
The VXX (standin for the VIX) is touted as a measure of "volatility", but as you can see in the plot below, that's not at all what it really is. In theory it measures the price of buying "insurance" in the form of options, or options premiums. In times of uncertainty, the price of insurance should be up -- no matter which way the uncertainty. But this plot against the SPY (market as a whole) reveals quite a bias on which type of insurance anyone ever seems to want. I post this for the logical people among us who might figure that in "market speak" volatility means the dictionary definition, risk means risk, and uncertainty means uncertainty when it comes to human beings. As you can see the VIX perfecly inverse mirror the market - well, is is a measure of volatility (eg change) or a measure of fear of change in a particular direction? The answer is in this plot, which looks a lot like this on any timescale. This speaks to a big skew in perception vs reality, and in calls vs puts out there, does it not? this looks more like a super-inverse SPY fund, like SPXU on steroids, not a measure of uncertainty (which should not have a directional bias).
I drew some trend lines on the X plot, if it hits the top one and bounces, I double down on that short. On more refined analysis, I see the parabolic drop, so this may not have been a great trade, I was late to this party and should have done it when I called it (before the big tankage!). He who is lost, hesitates, I suppose. Courage!
By the way, I picked up enough ZSL to hedge about half my silver (which is about 1/4 the dollar value). So, if silver goes down for awhile, I show half as much loss, and if it goes up and seems like going up, well, I sell the ZSL at a loss smaller than my silver gains. Not perfect, just a hedge. I'm longer term bullish on silver, but for the short term....
Going into the close. Whoa, the only way I could document today would be with a movie. What a $%^# day, but I made money again. Lessee, did all the stuff above, closed the short on the VXX, since I'd made enough - and anytime you can make a few percent (in this case a couple hundred bucks) on a small trade in mere hours, you take the money and run, understand? Yeah, in the woulda coulda world it might have been better to hold, but just like that "volatility" thing above -- there's a skew in what gets looked at in hindsight too. I bought some PG in a dip - for the long term account, got some ZSL in both (not enough to fully hedge silver) and CEF went up more than ZSL went down -- there's some arbitrage available there in the timing, and picked up a decent chunk of TMV at about a buck less than it is this minute. Doubled down on the short of X, and....I dunno -- TGIF, it's miller time or very soon, and I'm glad this week is over - again.
Physics this weekend, forget this stuff. Some guy said today "no one can make money in this, get lucky or go fishing". Well, I don't want to come off boasting, but I kind of doubt this was luck. Moves got made fast, while watching a huge number of balls in the air (both my holdings statements doubled in length today) -- and every trade closed green, except me selling half my MCHP today (maybe this one shows up later on woulda coulda but it was getting near my pain limit).
Have a nice weekend, we'll see if the US is downgraded over the weekend. Sad to say, that would make me considerable money if not immediately followed by a statement from the bernanke that said QE3 was going to buy bonds massively before I can sell TMV....
I'm going to go play in the lab for a change, as soon as I re-stock the beer stash.