A journal about the 50ETF (China)

[Baozi]

So.. I decided to start a journal. I have always been keeping journals, however, my discipline recently has slipped a lot, and I figured out that maybe I needed to put my thoughts on a public space, as a way to keep myself more disciplined but also as a way to invite different opinions into my thought process.

I trade mainly the 50ETF index (which I would say is the equivalent of the S&P, albeit with a much more narrow scope), so this journal could be an interesting diversion for most of the people who usually trade American/European markets.

I will divide my analysis in 3 parts: 1)media narrative 2)TA and 3)Implied volatility models. I won't post specific trades but I will state my daily greeks and P&L changes (in %, I'm not comfortable writing my net worth online). I will start tomorrow with the first entry.

 

[trend2009]

what is the symbol？

 

[Baozi]

what is the symbol？

510050

 

[trend2009]

you can not day trade it.

 

[Baozi]

you can not day trade it.

1_ You can't daytrade stock but you can daytrade options
2_ In any case I'm not daytrading

 

[trend2009]

looking forward to your journal. there is equivalent A50 future in US.

 

[Baozi]

Ok, let's start with the first entry.

Narrative:
A bunch of bearish news over the weekend (usual) unrest, economic slowdown, mounting debt, etc. A quick scan of the Chinese bulletin boards however is not showing much movement. Actually the biggest news there is still about capital markets opening up. On the trade war front, all is quiet and probably a phase 1 deal is already completely priced in.

TA (keep in mind that on Chinese charts the colors are inverted):

on the daily chart, there is still some momentum on the uptrend, but it is showing signs of slowing down. Volatility has been steadily going down since May.

on the 5min chart, the Friday close was very strong, in oversold territory.

VOL MODEL
my models are showing a high likelihood of the price bouncing around the 2.950 level in the near/mid-term. The midterm curve only recently shifted from 2.9 to 2.95

ANALYSIS:
The big gain of Friday was achieved all in the last minutes of trading so I need to see if it will hold the level or retrace back. The new data on exports is bearish so I expect a drop, but aggregated exports worldwide are not much changed so I don't expect any panic move.

In general, I expect the up move to slowly continue with reduced volatility as long as the phase 1 deal is in the air, but I don't think it will reach previous highs.

In my opinion, there is a real risk to the downside after any deal is reached, when people will look around and ask each other: "ok, so what's next?" The perfect storm would be a deal agreement worse than expected, coupled with the upcoming western/chinese new year (this year CNY is very early) and another round of bad economic data. This would probably trigger a selloff.

My strategy so far:
I am long delta and short gamma (mostly from short puts). From here to Dec 13 I will only buy puts. I will go delta neutral if there is a spike above 2.950. Depending on the situation, I might consider closing most shorts by Friday.

 

[Baozi]

So far so good. the index dropped a tiny bit but overall my P&L is at +0.04% due to IV reduction and time decay. Didn't buy/sell anything today. My greeks:

NARRATIVE:
a bunch of non-news, but the general feeling is that this time there will be a deal, after all. China seems to be backing down/keeping a low profile on a number of sensitive issues

TA:

on the daily, the trend is still up

on the 5 min chart, it started going sideways.

VOL MODEL:
for the 16 DTE options the most likely outcome is around 2.925, for the 44 DTE it's still firmly in the 2.95 zone

ANALYSIS
The consolidation could go on for the next few days, barring unexpected twitter bombs.

Strategy:
I have a short strangle of sorts at 2.9/2.95 on both the 16 and 44 dte level, plus a bunch of longs on longer time frames. Will keep the 16 DTE shorts either until Friday or until the moment I start seeing movement. As said before will buy puts in case of spikes above 2.95.

 

[traider]

Is this listed on HK exchange? How are the spreads like? Is it available through IB? Can't wait to do 24 hr delta hedging

 

[Baozi]

Is this listed on HK exchange? How are the spreads like? Is it available through IB? Can't wait to do 24 hr delta hedging

It could be listed through one of those stock connect programs but I don't know, I'm with a chinese broker so I trade directly on the shanghai exchange, no idea what is the availability to the outside world, but I know that there are futures traded in singapore.

Spreads are good, ATM/OTM strikes most of the time have bid and offer one tick apart, a bit more wide for ITM strikes but still quite tight.

The issue with delta hedging from local market perspective is that as a retail you can't short, the closest you can go is buying ITM long dated puts that simulate the behavior of short stock.