A journal about the 50ETF (China)

[Baozi]

pre-opening thought

year end in chinese market is well known for erratic moves, leveraged bets etc. Come to think about it, I don't exclude a super violent and short lived push higher. Just for today, will buy a bunch of cheap 5dte 3.05 calls. If the downmove happens I won't even feel it, but I will be protected from moves designed to wipe out short fools like me

 

[Baozi]

ok, so it was kind of a busy weekend, didn't have time to update.

On Friday I bought the 3.05 calls to neutralize neg delta, sold them (at a loss) when the flash rally didn't materialize and kept the rest going, closed still with very modest profit (+0.3%) as spot continued lower.

Today (Monday) I just watched the thing continuing to plunge, and closed with a very nice profit (+2.8%). I sold a couple of 2.95 puts, really a drop in the sea compared to the negative delta I have, it's actually just to have an anchor for the price level, the idea is to slowly build a position on this level as spot gets closer

My greeks:

Analysis:
recently the local exchanges approved the trading of the 300ETF, this is good news, however it fucked up the way I have to import data to my spreadsheets and I'm currently unable to run my IV models. only news and TA today.

In the news:
china scrapping tariffs on imports, possible issues of china unable to keep promises on import qty, debut of the 300ETF options, on local boards there is a piece with lots of views about the government unwillingness to use real estate as a mean to boost the economy short term.

TA:

on the daily, the down move became more evident. Volume has been increasing in the past 4 days.

on the 5min chart you can see the progressive deterioration of the trend

and I got the green line of death on my favorite indicator. When I get this signal, it means that the trading pattern meets my definition of a downtrend.

Analysis.
Absent new data, I continue targeting 2.975 as the most likely target for january. I expect spot to plunge violently for another day before stabilizing at a new level. Will continue adding more short puts in case of drop below 2.97

 

[Baozi]

Today basically been doing a whole lot of nothing. After so many days of going down, spot recovered a little bit, didn't sell more puts as it never went below 2.975.

The only two things I did today: 1)buying a bunch of ATM 1dte puts (lottery tickets) 2)selling a couple of 2.75 long calls, leftovers from a previous strategy.

Greeks (massive +gamma only due to the lottery tickets):

In the news:
pledge by the government to support small businesses, new rules about debt restructuring. Things like that have been said in the past, need to see how (if) this gets implemented.

TA

on the daily chart, the down movement took a pause, From here either it starts to move sideways or it continues down. Despite this, the long term trend seems to be still intact. The last push had actually more momentum than the push that reached 3.070

on the 5 min chart there is a clear difference between yesterday and today. A sustained, low volatility move upward for the whole day. Looking at this, I am not so sure anymore that the down move will continue. For the time being, however, my indicators are bearish.


IV models
everything points to the 2.975 as the most likely level in the near term. Interestingly enough, the 90 and 180 DTE curves shifted below 2.95, while in the past they had always been above 3.

Analysis
Hard evidence all points to a continuation in the down move, despite the trading pattern not being what I would expect in this situation. A single day is not enough to make me change my mind, but should the anomaly persist I will go delta neutral or even delta positive.

 

[Adam777]

Hi Baozi

Are these keltner channels on your price and volatility charts?

 

[Baozi]

Hi Baozi

Are these keltner channels on your price and volatility charts?

nope. It's a custom indicator I made similar to Bollinger bands in the sense that its width depends on price stdev, but it is recalculated only under specific conditions of price and volume, that's why it goes for long periods without changes.

 

[Baozi]

Finally some time for a new entry.

Due to personal issues I have been away from the market on the 25th-26th. The market, of course, decided to make dramatic moves exactly on those days. My P&L went back to the level before the big downmove (-3% from peak give or take), greeks same as before.

Let's recap a bit what happened so far.

In the news:
the biggest piece of news was the publishing of industrial profits on the 27th, that was above expectations. Chinese new year effect however should not be discounted, as this years it's one month earlier. Year on year statistics could be misleading.

TA

this is the 5min chart of the past 2 days. Uptrend> climax move up > sharp move down

daily chart: seems we reached a second peak, that failed to go higher than the previous

VOL models
the 26DTE curve is at 2.975 while the 61DTE curve is at 3. Despite the dramatic moves of the past days the vol models continued to point to the same level.

Analysis:
It's very difficult to come up with a coherent plan when there are conflicting signals all around. On a longer term time frame I would say that once again the uptrend has been confirmed. On a shorter time frame however I still see the potential for a correction, as I would define the move of the past two days more like a dead cat bouncing. This is confirmed by the fact that the vol models are still pointing at the same level.

Honestly, holding neg delta is becoming a less and less attractive proposition. I should have gone neutral on the 25th, when for a brief time spot went below 2.97. I see a high likelihood that next week that level will be retested again, as soon as it happens I will begin reducing neg delta.

 

[Baozi]

today has been a disaster.

instead of a move down, I got a massive push up, touching 3.058. I haven't done anything because actually most part of the move happened in <15 minutes and then it kept on swinging erratically around the same level. Lost a ton on delta and vega (another -3%).

In hindsight, tomorrow there will be PMI data publishing, so the market moved up in expectation of that.. but that's just one of those ex-post explanations. The truth is that the move totally got me by surprise.

Let's try to make sense of this.

In the news: another batch of committments and pro-growth initiatives from the government, plan to boost SOEs competitivity next year, PMI data expected tomorrow

TA:

on the daily, what looked like the beginning of a move lower, now looks like a continuation higher. It's still short of the 3.070 peak, momentum is also picking up.

on the 5min chart, looks really odd. first straight down, then straight up, then choppy sideways. On the 5min my indicators are not signaling a strong move like the one that appears on the daily.

VOL models
at the moment the curves are at the 3/3.025 level.

ANALYSIS
phew.. Until yesterday I thought I had it figured it out, today it stopped making sense. Year end+erratic moves suggest that there are lots of leveraged guys aiming at the moon. If tomorrow's PMI data exceeds expectations, I'll close all short positions ASAP and go long. If data is kind of underwhelming(less than 53) then maybe I can still hold on to the neg delta.