How can this oil hedge fund giant lose so much when October was an easy short trade?

[bone]

When he is short oil, or in cash, he is not doing his job.

I would respectfully disagree. Commodity fund managers are short all the time. This guy had a theme, he was levered to the gills, and he was wrong.

If you look at the prospectus for commodity hedge funds - the majority feature some sort of relative value strategy quite typically. If a HF won't short a commodity or certain expiries or upstream/downstream products within a commodity sector - I don't know how they would sustain any sort of meaningful performance.

 

[Chuck Krug]

I would respectfully disagree. Commodity fund managers are short all the time. This guy had a theme, he was levered to the gills, and he was wrong.

Yeah, you're right Bone. I read somewhere in the prospectus about upside, but they were talking about their returns, I thought it was about their long focus.
My bad.

 

[toc]

Oil is a BUY again for a short term swing trade to $60-65.

The stop is $49.95......a nice walmart price ;-).

 

[MrMuppet]

Guys, do you really think the big money is putting millions on the line because of a chart?????
And uses stop losses???!?!?! You've got to be kidding me.

First of all he trades so big that his size would move the market, so a stop loss is totaly out of question until you think front month CL survives a market order of 10k contracts.

Second, if I'm a HNI, running a fund of funds or a family office and some guy tells me "I went short because this 60 minute candle just closed below this purple line I've drawn here", I'd probably call someone who knows how to handle a straitjacket.

Technical guys are all about quantitative trading (risk arb, correlation etc.) and the rest is macro.
These guys have an army of analysts and informants and you can bet they talk to suppliers, refineries, transport and buyers to gauge the big picture. So if they use some kind of "technical indicator", they use it as timing tool to get into a trade that's been planned out for probably weeks already.

Don't mix that with your "lets try to short here and when it doesn't work, I get out" approach.

You know nothing about the oil market besides the chart. When you get long or short and hope for a run, you do nothing but betting on autocorrelation.

In professional trading you have only three ways of making money. Speed edge, information edge or finding legal loopholes. And unfortunatly technical indicators provide zero edge.


Sorry for the rant, guys, but it always tilts me a little when people compare a pre school kid who tries to throw a beverage can into a dustbin with an NBA player.

 

[toc]

Guys, do you really think the big money is putting millions on the line because of a chart?????
And uses stop losses???!?!?! You've got to be kidding me.

First of all he trades so big that his size would move the market, so a stop loss is totaly out of question until you think front month CL survives a market order of 10k contracts.

Second, if I'm a HNI, running a fund of funds or a family office and some guy tells me "I went short because this 60 minute candle just closed below this purple line I've drawn here", I'd probably call someone who knows how to handle a straitjacket.

Technical guys are all about quantitative trading (risk arb, correlation etc.) and the rest is macro.
These guys have an army of analysts and informants and you can bet they talk to suppliers, refineries, transport and buyers to gauge the big picture. So if they use some kind of "technical indicator", they use it as timing tool to get into a trade that's been planned out for probably weeks already.

Don't mix that with your "lets try to short here and when it doesn't work, I get out" approach.

You know nothing about the oil market besides the chart. When you get long or short and hope for a run, you do nothing but betting on autocorrelation.

In professional trading you have only three ways of making money. Speed edge, information edge or finding legal loopholes. And unfortunatly technical indicators provide zero edge.


Sorry for the rant, guys, but it always tilts me a little when people compare a pre school kid who tries to throw a beverage can into a dustbin with an NBA player.

Agree and disagree. There are 1000s of ways institutional PMs play their game. Liquidity issues might be with futures contracts but with stocks, Forex etc. big orders can be moved with mental stops and broken up market orders. In stocks via dark pools and Forex are most liquid to begin with.

It's not that complex and intensive research as you are trying to sound. One problem I have with big shops is that they do not invest much into research analysts, coders, model developers etc.

Just came to know about a HF with nearly $500M in AUM. They have 3 principals and two research analysts. That's too light of analytical fire power for $10M a year in fees alone and not counting the incentives.

"In professional trading you have only three ways of making money. Speed edge, information edge or finding legal loopholes. And unfortunatly technical indicators provide zero edge."

Nonsense !!

Professional trading is NOT like operating a space ship, Period !!

 

[MrMuppet]

"In professional trading you have only three ways of making money. Speed edge, information edge or finding legal loopholes. And unfortunatly technical indicators provide zero edge."

Nonsense !!

Professional trading is NOT like operating a space ship, Period !!

Well, I forgot about the fee-hovers like naked short gama or passive investing, but they don't generate any alpha. It's definitely not rocket science, I agree, but it's also not gambling like the retailers do.

 

[toc]

Even retail traders can select stocks that trade average 500K a day and then check out Level II quotes real time and decide for them own selves if a portfolio of $1 Billion having average 30-40 stocks can be run for short term trading including intraday and most definitely in swing trading.

Speed edge.............HFT issue not of mutual or hedge fund. Millions of shares can take some time to fill but nothing like microsecond bits/bytes race in the cyber space

Information edge.............a very thin line between clean and insider trading. Even an analyst phone call with a factory foreman and knowing a strike is in cards, can become a legal issue with the SEC.

Legal Loopholes.............very seldom cases.

Retail traders surely do lots of gambling type action but that is the learning process, can't fast track it, in the business of trading.

 

[bone]

Oil is a BUY again for a short term swing trade to $60-65.

The stop is $49.95......a nice walmart price ;-).

Only if you think that ES has put in a bottom here. The two are highly correlated.

 

[bone]

Guys, do you really think the big money is putting millions on the line because of a chart?????
And uses stop losses???!?!?! You've got to be kidding me.

First of all he trades so big that his size would move the market, so a stop loss is totaly out of question until you think front month CL survives a market order of 10k contracts.

Second, if I'm a HNI, running a fund of funds or a family office and some guy tells me "I went short because this 60 minute candle just closed below this purple line I've drawn here", I'd probably call someone who knows how to handle a straitjacket.

Technical guys are all about quantitative trading (risk arb, correlation etc.) and the rest is macro.
These guys have an army of analysts and informants and you can bet they talk to suppliers, refineries, transport and buyers to gauge the big picture. So if they use some kind of "technical indicator", they use it as timing tool to get into a trade that's been planned out for probably weeks already.

Don't mix that with your "lets try to short here and when it doesn't work, I get out" approach.

You know nothing about the oil market besides the chart. When you get long or short and hope for a run, you do nothing but betting on autocorrelation.

In professional trading you have only three ways of making money. Speed edge, information edge or finding legal loopholes. And unfortunatly technical indicators provide zero edge.


Sorry for the rant, guys, but it always tilts me a little when people compare a pre school kid who tries to throw a beverage can into a dustbin with an NBA player.

Having had some experience trading on a commercial energy desk, and at a HF energy desk - it's a different game than what you are describing. Most of the bets are relative value in nature. Most of the instruments they are using are OTC - either financially cleared swaps or bilateral physical forwards typically.

They want to generate alpha - that's what they get paid to do. They typically don't like to take outright flat price directional risk unless the information and risk/reward is overwhelming to them. The types of trades they are likely to do are along the lines of: Buy Singapore Fuel Oil Swaps and Sell Amsterdam Rotterdam Antwerp Fuel Oil Swaps as a Spread. They will do stuff like US Gulf Coast FOB Barges vs. Venezuelan FOB Barges. Naptha Swaps vs. Brent Middle Distillates Swaps. That type of thing would be their bread and butter.

Look at John Arnold when he ran Centaurus. He did plenty good trading Natural Gas Spreads. Crack Spreads. Electricity Spark Spreads.

 

[helpme_please]

Hi MrMuppet,

Thank you for your insights. I am a retail guy and I don't know the considerations and problems faced by the big institution guys.

As a retail person, we use stop losses to manage risks. For big institutions, if stop losses are totally out of the question, how do they manage risks?

Guys, do you really think the big money is putting millions on the line because of a chart?????
And uses stop losses???!?!?! You've got to be kidding me.

First of all he trades so big that his size would move the market, so a stop loss is totaly out of question until you think front month CL survives a market order of 10k contracts.

Second, if I'm a HNI, running a fund of funds or a family office and some guy tells me "I went short because this 60 minute candle just closed below this purple line I've drawn here", I'd probably call someone who knows how to handle a straitjacket.

Technical guys are all about quantitative trading (risk arb, correlation etc.) and the rest is macro.
These guys have an army of analysts and informants and you can bet they talk to suppliers, refineries, transport and buyers to gauge the big picture. So if they use some kind of "technical indicator", they use it as timing tool to get into a trade that's been planned out for probably weeks already.

Don't mix that with your "lets try to short here and when it doesn't work, I get out" approach.

You know nothing about the oil market besides the chart. When you get long or short and hope for a run, you do nothing but betting on autocorrelation.

In professional trading you have only three ways of making money. Speed edge, information edge or finding legal loopholes. And unfortunatly technical indicators provide zero edge.


Sorry for the rant, guys, but it always tilts me a little when people compare a pre school kid who tries to throw a beverage can into a dustbin with an NBA player.