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Global Macro Trading Journal
- Thread starter Daal
- Start date
I like this trade of shorting SPY at 200 with a 205 (or 205.50 for extra noise protection) stop because if there is indeed a new round of risk aversion, we should at least re-test the lows. So the risk is 5 points a share and the reward is 15 points, potentially more (in fact, a lot more if you use an less liquid stock ETF and conver into a flash crash).
The Fed futures side of the trade just helps to dimish the volatility of the trade in different scenarios. Although, I do think it has positive expectation
The Fed futures side of the trade just helps to dimish the volatility of the trade in different scenarios. Although, I do think it has positive expectation
In october 2007 the bull market ended and in october 2008 stocks crashed 10% in a week, plus all the other historical crashes. With the overall return of stocks being negative in that month and the psychological effect it tends to have on investors, it looks to me that if anything is going to happen its likely to be on that month
The big day has arrived!
Here some different scenarios that might happen today:
Fed no hike but hawkish talk (my baseline), stocks do the 'bloomberg terminal' pop but struggle to keep gains, buy the rumor sell the news. Probably fade today and finish red as people realize a Oct or Dec hike becomes a done deal. Fed futures rally (at least september and october ones), the other ones might tank depending on how hawkish the statement reads
Fed hike. Stocks get oliberated, finish down 2-3% and continue to bleed. Fed future collapse. I will lose money on that but I expect to make it all back plus more as stocks realize 'financial conditions' is no longer something the Fed cares about. ie: the punch bowl has been removed
Fed no hike dovish statement. Stocks soar. Fed futures soar. I will lose a bunch on the short stock side but make at least 60% of it back on the Fed futures side. I might have to cover if this does happen as the really might last for days
Fed no hike but neutral statement. Not sure what to make of this one. Stocks probably pop and Fed futures too. I probably lose small
I'm long Oct fed contracts with a 3-1 to ratio to the Nov ones. The Nov (and to some extent the Dec) are the 'punch bowl' contracts. If the Fed is dovish those things will be money makers, if they are hawkish, they will tank. I only bought this one to hedge the stock side. I don't necessirely think they are very mispriced. Maybe just a bit.
Here some different scenarios that might happen today:
Fed no hike but hawkish talk (my baseline), stocks do the 'bloomberg terminal' pop but struggle to keep gains, buy the rumor sell the news. Probably fade today and finish red as people realize a Oct or Dec hike becomes a done deal. Fed futures rally (at least september and october ones), the other ones might tank depending on how hawkish the statement reads
Fed hike. Stocks get oliberated, finish down 2-3% and continue to bleed. Fed future collapse. I will lose money on that but I expect to make it all back plus more as stocks realize 'financial conditions' is no longer something the Fed cares about. ie: the punch bowl has been removed
Fed no hike dovish statement. Stocks soar. Fed futures soar. I will lose a bunch on the short stock side but make at least 60% of it back on the Fed futures side. I might have to cover if this does happen as the really might last for days
Fed no hike but neutral statement. Not sure what to make of this one. Stocks probably pop and Fed futures too. I probably lose small
I'm long Oct fed contracts with a 3-1 to ratio to the Nov ones. The Nov (and to some extent the Dec) are the 'punch bowl' contracts. If the Fed is dovish those things will be money makers, if they are hawkish, they will tank. I only bought this one to hedge the stock side. I don't necessirely think they are very mispriced. Maybe just a bit.
I'm also considering buying The Nov and Dec contract AFTER the fed tanks them by being hawkish. The idea is that its a synthetic short on the stock market with a HUGE risk to reward ratio. Lets say the Nov contract tanks from 99.755 to 99.64 when the fed threatens to hike. I expect they to settle at 99.60 in a 50bps interest on reserves world (the effective fed funds tends to lag the interest on reserves, right now its 14bps with IOR at 25bps). So buying at 99.64 enables you to risk 4 bps to potentially make 22bps with huge liquidity so you can risk as much as you want.
But isn't fading what the Fed is saying risky? I think so but the risk-reward would be so great that essentially you would be calling the Fed's bluff. If stocks were to drop 5-10%, they might not do that hike that they are promising. Or at least delay it. China might tank too. At that point, it would make sense to get in just on the off chance things get so bad the Fed has to delay the hike
But isn't fading what the Fed is saying risky? I think so but the risk-reward would be so great that essentially you would be calling the Fed's bluff. If stocks were to drop 5-10%, they might not do that hike that they are promising. Or at least delay it. China might tank too. At that point, it would make sense to get in just on the off chance things get so bad the Fed has to delay the hike
One thing that I noticed is that the Fed funds futures market is far more efficient these days than it was back in 2008/2009/2010/2011 when I was longing it pretty hard. The fed being more transparent made everything easier to the guys playing with this big money. The edges are tougher to find
Another reason to be well-hedged going into this
Another reason to be well-hedged going into this