Kudos to MMs

Quote from nitro:

...If the market breaks down again, I may sell it, but at this point it is unlikely.
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A couple of IMs expressed confusion - why get out if I "belive in my model and my model says "FV" is considerably lower than here?"

I have made a slight modification to the way I trade this system, and it involves using options instead of underliers. Let me explain. I believe that you have to trade with institutions when it is right, and with MMs when that is right. Because I believe institutions were getting exhausted and the volume showed that we were transitioning from an institutional buying regime into a hybrid MM+institution trading regime, the correct way to be tradig SIFs at this point imo is with options, not the underlying. That allows you to gamma scalp small moves, or, let deltas run after that. You then will participate on the big directional selloffs, and in addition to, when the dip buyers coming back in.

Of course, there is no free lunch in non-arbitrage situatons, so the price you pay is you don't get payed for the first 1 STD move in the underlier [I explain gamma scalping a bit below], but markets are range bound with strong preference for the long side, and we are waaay away from "FV". Combine those two considerations, and unless you are perfect in your timing, on these time frames you are on average better off playing this market more like an options trader than someone who trades the underlier. It _almost_ allows for you to have your cake and eat it too.

Notice that this strategy doesn't violate me trading against "FV". Why not?

Ok, let's explain gamma scalping a little bit. Lets take an options position that is long gamma, like long an ATMF (at the money forward) straddle. Since you are long gamma, you are paying premium [not 100% true, but for our purposes it is]. The breakeven point for the day to pay your theta bleed is a 1 STD move in the underlier. So unless the underlier moves at least 1 STD for that day, you are on your way to losing money on a long gamma position [again not 100% true, but it is for our purposes.] So lets say SPX moves 1 STD and for the sake of argument, let's say it sells off 1 STD by 10:00 AM. Then what? We have now payed for our daily theta _if_ we hedge. But you say, we don't trade to break even. True, here is what we do. By hedgeing our deltas by buying or selling the underlying (in this case buying deltas because the market sells off), if the market moves in _either_ direction from here, this is our profit. So, if the market continues to sell off, we are now collecting on negative deltas, and if dip buyers come back in, we make money collecing on positive deltas. At the end of the day, or if you get another 1 STD move from here in either direction, you go back to "delta neutral" once again. That is the beauty of this strategy, and when you can identify a trading regime where markets are odds on to move 1 STD, _and_ in addition the market is not likely to die off at the 1 STD move, in either direction, long gamma trading works great. The other danger is that you buy vola at the wrong level, but that is not likely for me, at least historically it is.

I further enhance the long straddle (I don't use a straddle, but it is a perfectly reasonable position to use) by favoring the downside, so it is not quite as above, but it is almost. Finally, I am only in the long gamma position if I believe we are due for a selloff. The gamma scalping protects me from dip buyers.
 
Someone pointed out to me that you could implement the strategy above without options. Simply sell when you want, and then buy at 1 STD to protect from dip buyers. This way you don't have to give up the first STD move.

True, but what happens in the case (or what appears to be the case with me almost every time) where I sell ES, and the market goes 1 STD against me from there?

The point is that I am also positioned for some upside if the underlyer goes against me from inception, although once again I don't make unless it goes 1 STD higher from the first STD move, I just pay for theta with the fist STD from straddle entry. If it then screams higher, I start collecting. In my case, it is a little more since I am favoring the downside more than the upside. Since Vol is also holding up at these levels even when the markets rise, there is very little risk.

There are no bad strategies, only bad traders.
 
"FV" ~880.

Gold back at all time highs. Following the currency trade. Interestingly, oil is underperforming the same trade. I tell you this gold trade is a house of cards, but no denying the momentum.
 
Quote from Daal:

So you actually think the Fed will raise rates when the CPI is negative and the core CPI is close to 0-1% and declining?
http://www.elitetrader.com/vb/showthread.php?s=&threadid=178339

Good luck with that :)
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It will if the unemployment rate begins to stabilize and go lower, which I expect it will do end of this year, and start to tick every so slightly lower early next year.

I have no idea how people can talk about deflation when stocks are up nearly 60% in 7 months and gold is at an all time high, oil is at $70, housing prices are only 20% from bubble prices, education costs are nearly out of control, health care costs is trying to squeeze blood from a stone, the CRB index is near all time highs, and everything you buy at the store is way more expensive than it has been or nearly so :confused:

At what point is the dollar irreperably damaged? We are really close to that point, imo.
 
Quote from nitro:

It will if the unemployment rate begins to stabilize and go lower, which I expect it will do end of this year, and start to tick every so slightly lower early next year.

I have no idea how people can talk about deflation when stocks are up nearly 60% in 7 months and gold is at an all time high, oil is at $70, housing prices are only 20% from bubble prices, education costs are nearly out of control, health care costs is trying to squeeze blood from a stone, the CRB index is near all time highs, and everything you buy at the store is way more expensive than it has been or nearly so :confused:

At what point is the dollar irreperably damaged? We are really close to that point, imo.
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With regards to the unemployment rate I disagree it will come down in that time period. the 90-91 credit crunch lead to one of the most sluggish job recoveries on record, this time around it looks like it will happen again as the Fed Senion Loan Survey is showing banks arent lending
http://macrospeculations.blogspot.com/2009/06/credit-crunch.html

-stocks are up nearly 60% in 7 months
This Fed was cutting back when ES was at 1500, slight off the all-time highs, this doesnt seem to drive their decisions

-oil at $70
they look at the core CPI/core PCE mainly, hence 2% rates at $147 oil and QE with $70 oil

-health care, education costs
they are rising no doubt but the fed has to look at all costs, as expressed by the core CPI and it went from 2.5%yoy to 1.5% and it should decline more as that chart shows
 
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