Kudos to MMs

The initial reaction at 1298 ish was good, but the subsequent selloff and the continued weakness does not bode well for holding the 1294 - 1296 area.

C'est la vie. Be prepared to hedge long calls on a break of that level and wait for 1272 ish to get long again. Otherwise, model indications are that we are hugely undervalued. Parameter still slightly inverted, but I suspect it rights itself this week.
 
So we took the loss and hedged. Now we wait 1272 ish. Same reasoning as above. 1272 may be too conservative, and you have to decide where to get long. But at 1272 there is no choice. You can risk it and hope to get in on momentum cross of 1272 from below, but that is imo far too conservative this time.

1272 is get long with your guns. For those that are conservative, 50 delta calls at least. For those of us that understand the opportunity, use 75 delta call options.

The R/R at 1272 is really juicy. Risk 20 (at most remember long calls delta slows down on falling market, to say nothing that the call skew will get expensive on ATM/OTM calls when SPX nears 1242) to make 100+.
 
At this point, we have to keep hedged and wait for out level, or 1272 ish.

The most annoying thing that can happen is to get stopped out of the right direction, never having gotten in again. That can happen, but we are playing odds, and odds are that the selling is not over yet, altough temporary pullbacks may occur.

The danger in getting long again is whiplash. Over the course of years, you learn to relax and stay calm and let prices come to you. Trading directionally in a trading range is very dangerous, even with edge. Sometimes a good one gets away, but over many trials, this has turned out to be the sanest approach, imo.
 
Well, we will likely be a a stepping stone from 1272 on the open. Standing orders are difficult to do in options with giant bid ask spreads (ITM SPX options are notorious for this). If you have a broker that will work an order in the SPX options pit, that is best. Otherwise, some sort of automated system that give up .05 or .10 beyond the mid will get you filled much of the time.

Probably the best way is to use SPY options. Those are extremely liquid and have a tighter B/A spread by comparison, although no one may fill you. They are not as efficient as SPX options (in terms of size of contract per commission), but most people on this site are retail traders anyway. You have to work hard to get a ITM option fill at a decent price, even giving up edge.

There is no choice at 1272. We must go long, and go long with courage using 50 or 75 or higher delta call options, unhedged. If you prefer, as I have suggested above on several occasions, go long on a cross from below 1272, that way momentum is on your side. The risk is that you miss the entry completely trying to save a couple of handles (silly when your target is 100+). Another thing to do is to let go the hedge from previous long call trade at 1272 ish, but that may not give you enough deltas.

If things go bad, the hedge point is again about 8 points, or 1262-1264 where we have to hedge the long calls once again. Then we wait for 1242-1250, but first things first.

Note that I don't recommend trading the ES this way unless you are extremely disciplined. The reason to use long (ITM) options is that they have a built in catastrophe regulator, you can't lose more then the premium you paid when you are wrong, and they act like the underlying when you are right. So you control your emotions when things go bad and go good. Perfect.

At the risk of repeating myself, we trade against the momentum (but note not against the trend) because SPX is massively undervalued here relative to "FV". Parameter mildly inverted still. Not perfect, but then we probably wouldn't be close to 1272 if it weren't.
 
Nitro, did you participate in this competition?


Sonas: The Deloitte/FIDE Chess Rating Challenge
08.06.2011 – The Deloitte/FIDE Chess Rating Challenge, a worldwide contest to determine the most accurate rating algorithm for predicting chess game outcomes, has recently concluded. The winner of the $10,000 first prize was Tim Salimans, a Ph.D. student in the Netherlands. Tim submitted the most accurate predictions, out of all 189 teams who participated, and so he won the big prize.

http://chessbase.com/newsdetail.asp?newsid=7277
 
Quote from shortie:

Nitro, did you participate in this competition?


Sonas: The Deloitte/FIDE Chess Rating Challenge
08.06.2011 – The Deloitte/FIDE Chess Rating Challenge, a worldwide contest to determine the most accurate rating algorithm for predicting chess game outcomes, has recently concluded. The winner of the $10,000 first prize was Tim Salimans, a Ph.D. student in the Netherlands. Tim submitted the most accurate predictions, out of all 189 teams who participated, and so he won the big prize.

http://chessbase.com/newsdetail.asp?newsid=7277
More...
No I saw that and found it interesting. If I am going to spend time doing this sort of science, I would rather spend the time (from my ever shortning pool of free time) to do market analysis. :)
 
is gold price somewhere in the model? i assume it is since the model as far as i understand has incorporated everything more or less. is the future gold price anticipated my the model somehow or is it just a parameter that is not projected forward?

what's the fair value of Gold now?
 
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