Fading Yen - It has gone parabolic

[hftvol]

I just do not even know where to being saying how this just does not add up. Why would you feel you expose yourself to too much risk trading cash? You can square the position even if it goes against you by 1 pip. Also, spreads again are not designed to take directional exposure to. Leaves me in a very confused state of mind. But what the heck, that was your trade not mine.

I can only urge you to realize your losses and to never let markets move against your position by that much. I am afraid my appeal will be fruitless, because you do not sound at all you feel or sense the slightest pinch of pain.

Quote from gmst:

ummm....Allow me to explain.

Taking a directional bet with spot would have exposed us to unacceptable levels of risk if the spot moved against us 5-10 figures. We wanted to not lose the macro position. The expected horizon of the trade at inception was 6-9 months. We were looking for a maximum of 20-25 figure move in our favor and an expected 10-15 figure move. With volatility in 2010, trade moving against you by 5-7 figures was a real possibility.

Given these constraints, we decided to do the calendar spread with X2 at 12 big figures (to give us enough room) and X1 at spot to express our macro spot view using options. This was not your typical trade of a vol trader in a bank. Rather it was a trade that your typical hedge fund would do. Hopefully I explained it this time.

 

[oldtime]

I don't know how many times I have to tell you this. You stay hedged your whole life, always with the idea of protecting yourself from bad luck, and leaving the door open for good luck.

and maybe once, twice or even three times in your whole trading carreer you hit it big

like the guy that was short yen

then you just let it ride

the worse that can happen is you just go back to your hedging career trying to eak out a living each month

 

[gmst]

Quote from gmst:

ummm....Allow me to explain.

Given these constraints, we decided to do the calendar spread with X2 at 12 big figures (to give us enough room) and X1 at spot to express our macro spot view using options. This was not your typical trade of a vol trader in a bank. Rather it was a trade that your typical hedge fund would do. Hopefully I explained it this time.

Correction: X1 was not at spot, rather it was at 8 big figures in the other direction. Vol curve was not perfectly symmetrical, so even when the distance between X1 and X2 from spot was net 4 figures, premium we paid was limited.

 

[gmst]

Quote from hftvol:

Ok, sorry my wrong. In any case with an unrealized loss on the book of 6 handles that implies you look to gain at least 12-15 handles (> 1:2 risk reward implied), why would you believe usdjpy to dip to about 82 levels? I just still miss the rational behind it.

Re your calendar spreads, I have never witnessed a single trading desk not having gotten shut down for being so under water. No fx trader I have ever come across in my life has not been fired for a loss on the book north of 10 handles, no matter how small the position, no matter through which cash, options, or futures structure the delta came about. (this implies obviously that you remained delta unhedged which you indicated you did not hedge otherwise whats the point of talking about the market moving against your spread delta).

Let me clarify on this usdjpy trade. I have never before in my trading career (almost 4 yrs now) done such a trade. This was a very experimental kind of trade for me and it did not work out.

About the calendar spread, its good news because you learnt something new today To give you some color - I was very new into my job when I took this trade. My desk wanted to do such a trade for ages, but they never ran the numbers. I ran the numbers took the proposal to my head of trading. The sanction for the trade came from head of trading and head of GM and I executed it. The trade lasted for around 3 months, when we finally closed it. During these 3 months, I had numerous discussions with my head of trading on this trade and we developed a great professional relationship.

To be honest, when we closed the trade and lost 70% of X, my boss was irritated for about a week and I avoided him But after around a week, he took me aside and told me that I managed the losing position very nicely. After this trade, other than our professional relationship, we became good friends as well. Sometimes being in a losing trade and managing it the best possible way is all it takes to leave a good imprint on your boss. Just sharing my experience.

 

[gmst]

Quote from hftvol:


I can only urge you to realize your losses and to never let markets move against your position by that much. I am afraid my appeal will be fruitless, because you do not sound at all you feel or sense the slightest pinch of pain.

Just having a good discussion with you. So, your appeal will not be fruitless. I don't trade like this normally. This is very out of the regular, very experimental trade for me.

 

[oldtime]

by your "boss" do you mean your "wife"?

 

[gmst]

Quote from gmst:

Covered this additional 2.5% risk at 95.5 for a 2.5% PL.
So, total booked PL = 4.93+2.5 = 7.43%.

I am still waiting for a better price to close the trade.

I had 0.25% risk from each 90, 90.25, 90.5, 90.75, 91, 91.25, 91.5, 91.75 and 92, for a total of 2.25% risk at an average price of 91.

I have covered this 2.25% risk at 96 for a loss of 11.25%.

So, total booked PL = 7.43% - 11.25% = -3.82%.

So, I have now cut the original trade risk by more than half. I am going to keep the remaining risk on as of now.

 

[gmst]

Currently, I still have following risk:

1% risk from average price of 93.25 (0.25% risk at 92.5, 93, 93.5 and 94).

1% risk from 93.5 that I added.

So, MTM PL with usdjpy at 96 is -(2.75%+2.5%) = -5.25%.
And total booked PL = -3.82%.

 

[hftvol]

a) I did not learn anything new. Fyi, I have been a vol trader for years for various tier 1 banks, though not much on the equity side and as I insisted how you managed the delta on this calendar spread was plain wrong, it would have usually gotten you fired.

b) Some are in this market to make money, others to make friends. Each one to his own.

Quote from gmst:

Let me clarify on this usdjpy trade. I have never before in my trading career (almost 4 yrs now) done such a trade. This was a very experimental kind of trade for me and it did not work out.

About the calendar spread, its good news because you learnt something new today To give you some color - I was very new into my job when I took this trade. My desk wanted to do such a trade for ages, but they never ran the numbers. I ran the numbers took the proposal to my head of trading. The sanction for the trade came from head of trading and head of GM and I executed it. The trade lasted for around 3 months, when we finally closed it. During these 3 months, I had numerous discussions with my head of trading on this trade and we developed a great professional relationship.

To be honest, when we closed the trade and lost 70% of X, my boss was irritated for about a week and I avoided him But after around a week, he took me aside and told me that I managed the losing position very nicely. After this trade, other than our professional relationship, we became good friends as well. Sometimes being in a losing trade and managing it the best possible way is all it takes to leave a good imprint on your boss. Just sharing my experience.

 

[hftvol]

so you are still going to bed each night with losing positions on the book. Experimental or not, its just the wrong approach. I do not mean to be condescending but this is how 99% of the retail crowd trades and they mostly lose money, why you wanna be part of them. Why not cutting it all and start over. Next time you cut losers short and you run winning positions a lot longer, rather than the other way around.

Quote from gmst:

I had 0.25% risk from each 90, 90.25, 90.5, 90.75, 91, 91.25, 91.5, 91.75 and 92, for a total of 2.25% risk at an average price of 91.

I have covered this 2.25% risk at 96 for a loss of 11.25%.

So, total booked PL = 7.43% - 11.25% = -3.82%.

So, I have now cut the original trade risk by more than half. I am going to keep the remaining risk on as of now.