A journal about the 50ETF (China)

[Baozi]

as expected the day was flat, but I saw some momentum picking up during the last hours. Better safe than sorry, I closed out the short calls at 2.95 on the 14 DTE. P&L gain almost nothing (0.02%), mostly due to theta decay. Now these are the greeks:

As for tomorrow:

Narrative:
tariffs once again postponed, while on local boards the most followed piece of news was about measures to boost the real estate market.

TA

according to my personal definition still in an uptrend on the daily chart

on the 5 min chart, went sideways for most part of the day but then a trend started picking up in the afternoon.

VOL MODELS
same as yesterday, forecasting 2.925 for the front month and 2.95 for the back month


ANALYSIS
with the potential tariffs postponed, I think that the drift upwards still got more room to continue. Will hopefully go on riding the move until the end of the week.

 

[Baozi]

today and tomorrow I'm travelling so no access to models/data. P&L up 0.18% due to the upward move almost touching 2.95. Not sure if it will retrace tomorrow as the other major china indexes were down today. no changes in inventory.

 

[Baozi]

Phew, finally home.

This morning I bought a few more long dated puts when the etf briefly flirted with the 2.95 level, as they started to become really cheap. As I said before, my thesis is that currently the main risk is on the downside, so I'm steadily increasing the puts inventory when I think they are cheap, while at the same time selling the short-dated straddles during drops.
My greeks at today's close:

The drop in spot left my P&L unchanged for the day, as I bought the puts at the opening and they kept on increasing in value during the day as spot slid back to 2.94 and below.

expectations for tomorrow:

NARRATIVE: china car sales falling again, dec15 tariffs likely to be postponed, on the local boards a lot of people talking about trade war progress being made. If this news got published on the pleb boards it means that there could be some substance to the rumor.

TA:

On the daily chart, It can still be called an uptrend according to my indicator, but it keeps on weakening. I have a strong feeling that we won't touch again the 3.070 peak for a while.

on the 5min chart It's been a slow drift down, but one of my favorite custom indicators had a sudden spike upwards during the last 15 mins. It could be a false positive, but should not be ignored either.

VOL MODELS
front month curve at 2.925, back month curve at 2.95

ANALYSIS
If tariffs are postponed on Sunday, it's going to be a spike followed by a slow drift to nowhere. If they aren't, it's a drop. Either way, it makes no sense to have lots of positive deltas by Friday's close. Tomorrow I will probably close some shorts to reach neutrality/reduce gamma.


Talking a bit more about vol: rolling 50-day RV is around 15% while IV has been consistently between 11% and 13%. Being short gamma is not something that I particularly enjoy in this environment. In my model, RV is at one of the lowest points in more than 10 years (a lower point was reached only in 2017 before a massive bull run, but I doubt we are in the same situation), the risk of volatility exploding in my face is real, and in general, I must be really careful in closing all shorts whenever vols begin to climb.

 

[Baozi]

Oh, how I was wrong.. Agent orange decided to make his fabulous statement during the week, not over the weekend. The move was big, and It kind of got me a bit unprepared. I was considering the phase1 to be already priced in, but instead the ETF went up another 2%.
Along the move, this is what I did:

1-closed the dec 2.9 short puts, as they had basically no juice left
2-opened a few march 3.1 short calls. I don't plan to hold them for very long time, it's more a play on skew.
3-I had a bunch of dec 3.05 long calls, originally there for hedging purpose but as they suddenly spiked to profitability I decided to sell the dec 3.1 calls against them at a 1:2 ratio.
4-increased inventory of march 2.85 puts

My greeks for the day end up basically inverted compared with yesterday.

Funny thing, the P&L for the day is almost unchanged (-0.1%), as I inverted my position a bit too early. Should have waited the end of the day.

Prediction for next monday

Narrative: the trade deal is done, but now let's wait for the content of the final text. Also, there is no official communication from the Chinese side. Other things: brexit, Big default on SOE bonds, pro business measures by the government, new rules to curb speculation in the real estate market

TA:

on the 5 min chart, the up move was very strong, however the momentum in the afternoon was not as strong as in the morning.

my favorite indicator is also signaling that the strong up move is likely finished

VOL MODELS
the models shifted a lot today. the most likely outcome is 2.95 on the front month and 3 on the back month

ANALYSIS
My expectation is that the trade agreement is going to be underwhelming and that the euphoria of today won't carry over to next week. On top of this the upcoming economic reports are supposed to be not so great. If the bullishness continues however I might be in trouble with my Jan shorts.

 

[Baozi]

So.. it feels good when you just flipped to delta negative on Friday and on Monday morning spot rally died down.. but while it's true that in the next future I don't expect more good news to prop up the market, there is also not a clear catalyst for a selloff.

sold the 1:2 3.05/3.1 call ratio as the 3.1 calls went almost immediately to their "penny value" (the minimum value where mm keep them until expiration day)

tiny P&L gain <0.1%, as the close was almost unchanged.

greeks:

my previous analysis stays unchanged. retracement in the short term, long term wimpy uptrend. Will hold negative delta as much as possible, unless the uptrend starts to pick up too much steam and negative gamma comes out to bite off my face.

 

[Baozi]

unless the uptrend starts to pick up too much steam and negative gamma comes out to bite off my face.

Today was the day when I got my face chewed. During the morning the beast continued edging higher but without much conviction. I actually had a bad feeling because the other indexes were up, while the 50ETF was refusing to move, but I decided to stick to my plan nevertheless. Then, in the afternoon, It skyrocketed from 3 to 3.05 before I had the time to formulate any coherent plan.

On my way to the moon, I sold the jun 2.85 long calls I had been holding so far, as well as buying jan 3.05 puts (almost at the top) and selling jan 3 calls at 1:2 ratio. When the push ran out of steam and spot closed at 3.25 I had partially recovered the day's losses. (-0.7%). Phew!

My greeks at the end of the day:

Forecasts for tomorrow

Narrative:
The headlines are still dominated by the failure of taiwoo group bonds, on local boards a lot of interest for the upcoming reforms to financial markets which aim to improve transparency and market access. I think that if those junk bonds are allowed to default, there is a serious probability that the ball of cash will move somewhere else.

TA:

on the daily, clearly an uptrend. Despite the big movement however the momentum indicator is not (yet) super bullish.

on the 5 min chart, I think I can see the climax followed by the exhaustion.

VOL MODELS
some change also in the models. Now both the 9DTE curve and 36DTE curve point around the 3.025 zone

ANALYSIS
What to say.. I'm scared. My view is that we should be around the top now, but if a new year stampede takes hold I must be ready with a contingency plan.
-My Jan straddle if held to expiration is still making money up to 3.044, so I'm not yet out of the profit zone, but I'll keep it monitored.
-Will kill tomorrow the jan 3.05 long puts / jan 3 short calls if there is no sign of big retracement.

 

[Baozi]

This time I'm writing just before the open, yesterday was a bit busy.

What to say, It's been a rough day. Killed the jan 3.05 long puts in the morning when I was feeling that it could push higher, and then bought a shitload of jun 2.9 calls to neutralize my deltas in expectation of a sudden breakout. When the breakout did not materialize in the afternoon I closed the calls (at a loss, of course) and shorted more jan 3.05 calls. That's been a tough decision, but in the end the momentum started reversing. Closed the day with a moderate loss (-0.7%), mostly due to vol picking up.

My current greeks (I feel scared just by looking at them)

forecast
NARRATIVE:
no relevant news coming in recently. (but my secret Xmas hope is a tweetstorm where Trump says he won't sign the agreement unless more concessions are made..)

TA

this is the daily, still in an uptrend according to indicators, but in my opinion will either retrace or consolidate a bit.

on the 5 min chart it seems to be deteriorating. One thing I noticed when the ETF goes down is that the price goes completely flat for a while and then drops down to another level, like a set of stairs. In an uptrend it's a wavy movement.

VOL MODELS
my model corrected again, now the front month curve signals 2.975 as most likely outcome (at 7 DTE) and the back month curve signals 3.

ANALYSIS
keep holding the negative delta.. I hope this is the beginning of a sustained down move but I'm ready to close the shorts at any time.

 

[maxinger]

unfortunately foreigners can only trade very few products from China Exchanges.
China Exchanges are very huge.
I am looking forward to trading those products.


You mentioned Chinese chart candlestick colors are different from us
(up is red, down is blue).

Is it due to Chinese chart software setting which can't be changed?
Or is it like Chinese culture thing where up should be red color and down should be blue color?
If you have a choice, what color would you choose?

 

[Baozi]

unfortunately foreigners can only trade very few products from China Exchanges.
China Exchanges are very huge.
I am looking forward to trading those products.


You mentioned Chinese chart candlestick colors are different from us
(up is red, down is blue).

Is it due to Chinese chart software setting which can't be changed?
Or is it like Chinese culture thing where up should be red color and down should be blue color?
If you have a choice, what color would you choose?

default settings are like that, I got used to it and after a while, it feels normal. Actually I could customize the colors, but I never bothered... It's because traditionally for the Chinese red is THE lucky color, it wouldn't feel right for them to associate it with losses..

 

[Baozi]

Today I closed the Jan 2.9 short puts, as there was not much juice left in them.
Now I have a lot of mar 2.85 long puts, a few 1:3 mar 2.85/3.1 call ratios and a shitload of jan short calls at various strikes, the lowest at 2.95. Never been so heavily directional in a while.

Today the stock dropped a bit (but vol increased) and I recovered yesterday losses (P&L +0.8%)

My greeks:

Forecast:

Sentiment:
the recent headlines are about the liquidity injection in the banking system in expectation of chinese new year. Doom and gloom predictions, nothing new.

TA

on the daily chart the top seems to be forming, momentum indicator continuing to deteriorate

on the 5min there was a tiny afternoon bounce. I would have preferred a flat line, a bounce like that is suggesting there could still be some push higher

the momentum of the move is however clearly diminishing

VOL MODEL

this is the most interesting thing. The 34 DTE curve yesterday was pointing at 3, today shifted to 2.875. Never seen such a dramatic shift ever since I started calculating probability curves implied by the options. If I base solely on this, I am expecting the apocalypse tomorrow.

ANALYSIS
seems that the stars are aligning for a big drop tomorrow. If so, I will do nothing and just ride it down into the abyss. If nothing happens, I will reduce the directional exposure before heading into the weekend.