EURUSD for the week of 3/30/08

I just shorted it (1/4 of position at 1.5772). I do not think it will go beyond 1.5790. So quick pips possible. Time 8:17PM.


Addition: 8:30Pm another 1/4 is added. 1/2 total so far. Latest entry at 1.5777.

Taking a break now for sometime. We will see what it will do before adding the second half to the short. Stops are working (I do not want to put them in here so that someone takes me out, but if you want them PM me, but I think you will need this info). Bye now everybody. Good trading
 
Quote from atticus:

Both stat and implied in EURUSD.

Crude oil is priced in dollars. The relationship is analogous to bond Px/rates. As the dollar falls, crude rises to maintain parity in the non-dollar World. The correlation has been >80% 12mo-trailing. Therefore, the price of EURUSD and CL are highly [+] correlated.
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Thanks. So if one has a view on direction and wants to do it by selling option premimum, would that mean that it is better to sell the one with high implied vol and be negative delta? Is there a possibility of "arb" that exploit correlation, and possible differential in vol? I would guess that crude is more volatile. Am I right?
 
Quote from riskfreetrading:

Thanks. So if one has a view on direction and wants to do it by selling option premium, would that mean that it is better to sell the one with high implied vol and be negative delta? Is there a possibility of "arb" that exploit correlation, and possible differential in vol? I would guess that crude is more volatile. Am I right?
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Right. You could sell vol in CL and buy it in EURUSD while maintaining a long CL/EURUSD futures spread. Selling CL calls and buying EURUSD calls; long the CL/FX spread -- the futures spread transforms the position into two opposing synthetic straddles. Of course you can simply trade the natural straddles adjusted for vol and tick. You're not concerned with absolute implied vol but rather the realized vol. It's not as simple as I propose, but that's the idea.
 
Quote from atticus:

Right. You could sell vol in CL and buy it in EURUSD while maintaining a long CL/EURUSD futures spread. Selling CL calls and buying EURUSD calls; long the CL/FX spread -- the futures spread transforms the position into two opposing synthetic straddles. Of course you can simply trade the natural straddles adjusted for vol and tick. You're not concerned with absolute implied vol but rather the realized vol. It's not as simple as I propose, but that's the idea.
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The synthetic straddle is clean. Tell me, did you apply the same idea to three currencies? Out of the three possible pairs, you sell vol on one, buy vol on a second, and hedge with spot on the third, which should act as the "replacement" of the spread. As opposed to the CL/FX spread, the third pair would have tradeable vol on its own. So, I would think that the hedge should be with the spot that has middle volatility. Did I get this right? does the idea work?

Also in the CL vs EUR/USD, does one need to determine a ratio between the number of contracts in CL and EUR/USD. Other than adjusting for dollar values, I am thinking in terms of variance/vol of the overall hedged position. My raw/initial thinking tells me that a ratio can be determine in a variety of ways such as minimizing/annulling the variance of the hedged position (that ratio might be obtained from an equation involving the ratio, the variance of CL, the variance of EUR/USD, and the covariance/correlation factor of CL and EUR/USD). One can also use other ratios (arbitrary or optimizing something). So if my thinking about this is right, what is the methodology used to determine the objective behind using a given ratio if this ratio is part of the design?

Also, I am guessing that once one has determined a ratio, the next step would be to see if by setting the hedged position for that ratio one can still come with a positive number by selling vol on one side and buying it on the other.

Sorry if you find my post long, and/or I am asking some elementary questions.
 
Quote from riskfreetrading:

I just shorted it (1/4 of position at 1.5772). I do not think it will go beyond 1.5790. So quick pips possible. Time 8:17PM.


Addition: 8:30Pm another 1/4 is added. 1/2 total so far. Latest entry at 1.5777.

Taking a break now for sometime. We will see what it will do before adding the second half to the short. Stops are working (I do not want to put them in here so that someone takes me out, but if you want them PM me, but I think you will need this info). Bye now everybody. Good trading
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In case you followed the above trade. I did not add to it, and I just closed the 1/2 I opened at 1.5755 at around 1:14AM (20 pips gain or so). Going to sleep now. Good trading everybody.
 
Quote from riskfreetrading:

Over the next 36 hours what the bulls can do is probably keep it within the triangle if they are strong enough. 1.5730 is within the triangle, and the Wednesday time frame mentioned in earlier posts.
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Some people PMed me about the doc file I posted earlier. As you could read in this thread and the thread on EUR/JPY, I am on the bear side of EUR/USD. What the triangle in the .doc file mean is that all the bulls could do, based on my analysis at the time I posted the doc file, is to mount an advance that is limited by the upper side of the triangle (which then should serve as a resistance if approached). I did not check the recent price action, but you can check if it did indeed serve as a resistance. Of course if the bulls are not strong enough the price can fall below the triangle (which will make me happy).
 
Quote from riskfreetrading:

Some people PMed me about the doc file I posted earlier. As you could read in this thread and the thread on EUR/JPY, I am on the bear side of EUR/USD. What the triangle in the .doc file mean is that all the bulls could do, based on my analysis at the time I posted the doc file, is to mount an advance that is limited by the upper side of the triangle (which then should serve as a resistance if approached). I did not check the recent price action, but you can check if it did indeed serve as a resistance. Of course if the bulls are not strong enough the price can fall below the triangle (which will make me happy).
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As i was typing this EUR/USD is already 1.5641 you are good :) riskfreetrading you have yahoo messenger or msn ?
 
From the EUR/JPY thread

Quote from riskfreetrading:

1:36AM EDT: if someone is short EUR/USD, watch out for 1.5550. It could be a trap for bears operating on a small time scale. I am not playing this pair now.
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If you followed the call in my above post ("1:36AM EDT: if someone is short EUR/USD, watch out for 1.5550. It could be a trap for bears operating on a small time scale. I am not playing this pair now."), I think it is time to take your profits.

3:09PM: take profits at 1.5678 (that should be 128 pips gain).

Protecting positions or taking profits need action, but a man has the luxury to wait when entering. I am now considering shorting, but I need time to study the chart to determine if and when to go short, and I am busy with other things now.
 
1:50PM: shorted a 1/4 of intended position size of EUR/USD at 1.5670 (I missed the earlier failure of retest of high of day-- was busy looking at equities)).

1:58PM: movement down was not fast enough. So I took it off for 5 pips gain. Maybe it wants to hang in the area of 156.70 to 157.00 in the next couple of hours. May fall towards the end of day. I will revisit it at around 4:00PM when equities are done trading, and see if I should short it if it stays close to the high of yesterday.
 
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