Kudos to MMs

Quote from shortie:

any significance to the fact that 1272 was penetrated to the downside with such ease?
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It is not good certainly. That it is Friday doesn't help. Opts ex next week also complicates things...

If you want excuses to bail, you will always find them when trading against a (short term) trend. We planned the trade, now trade the plan.

"“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.” - Jesse Livermore
 
i think the model is wrong :(

here is why:

the model predicts 1480 indicating that you should place aggressive long bets, yet several recent support levels got broken with ease. therefore, there is contradiction in the model expectation and the price action.

the common sense is to "average out" FV and the price-action. this union suggests ~flat market, some bullish bias (if FV is given more say), or even bearish bias, etc. depending on exact formula to average the inputs.

I am betting on some bullish bias because the market is indeed oversold quite a bit and I do believe (I must be a fool to be honest) that FV can't be totally wrong.
 
Quote from shortie:

i think the model is wrong :(

here is why:

the model predicts 1480 indicating that you should place aggressive long bets, yet several recent support levels got broken with ease. therefore, there is contradiction in the model expectation and the price action.

the common sense is to "average out" FV and the price-action. this union suggests ~flat market, some bullish bias (if FV is given more say), or even bearish bias, etc. depending on exact formula to average the inputs.

I am betting on some bullish bias because the market is indeed oversold quiet a bit and I do believe (I must be a fool to be honest) that FV can't be totally wrong.
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When the parameter inverts it has been right everytime to be cautious to trade against it even if FV disagrees. Once again the last three weeks has born that out. When the model and the parameter are aligned, the model is close to 100% (in the new incarnation that is now almost 8 months old.)

The way to control that risk (model and parameter disagreement) it to act only at support points, mixing conservative ATM or OTM options when cautious, and getting aggressive with ITM options at major support points (but never getting too aggressive to the long side on too inverted a parameter that disagrees with FV).

But look, there was certainly money to be made going short from 1370ish to now, and it is still an open question whether to override FV long bias on parameter inversions.

There appear to be four states that matter:

1) FV and parameter align long
2) FV and parameter align short
3) FV and parameter disagree short
4) FV and parameter disagree long

We have been in 4 for the last three weeks, but with parameter getting less and less inverted. This is why I started getting bullish at 1300, then again at 1272, but minding that it is still inverted we used ATM or OTM options. Here, parameter is almost righted, with a monster edge from FV. That plus 1272 being a major pivot, called for ITM options.

Now we sit and either enjoy our spoils 100 handles higher from here, or bail long (by hedging) on a swoon and look to get long again at 1240-1250 (assuming parameter allows it).
 
Quote from shortie:

... and I do believe (I must be a fool to be honest) that FV can't be totally wrong.
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about "the fool" part: i guess what i wanted to say was that one should not rely too much on the numbers from the model one did not program himself or at least have deep understanding on its limitations/advantages.

i do like to look at it and try to make some sense/use out of it.

i like the concept of the model that includes "everything" and spits out a single number. but i have learned that the absolute number can be very misleading even though sometimes it is spot-on (but this has not happened for a while). i note that you did say many times that it is the relative value that matters the most.

my guess is that it is very misleading right now. FV ~200 pts away from SPX right now. SPX travels this much in a year! what are the special circumstances today that could justify such a move in a short period of time?

QE3, massive panic? - does not look like that.
 
SPX/GLD is at the major support that survived multiple attempts on its life in 2010. >10% bounce over 1-2 months here seems more reasonable to expect than for SPX itself.

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Nothing to do but let the market play itself out and hopefully let our ITM long calls gain deltas. We can afford to lose a few little ones as long as the big payoff come. It is when you eat like a bird and shit like an elephant that traders get in trouble.

Mind your downside, and when you get a hold of a good one, reread the advice from Livermore above.
 
The natural inclination with a strong preopen is to think about pressing our position long. However, imo that is premature with an inverted parameter. Granted, it is mildly inverted, but inverted nevertheless.

There will be a time to get aggressive, I just don't think we are there yet, imo.
 
Nothing to do but hold on to our now DIM long calls. The urge of the amateur is to take profits here. We are up even taking into account the loss of the calls we bought at 1300 and hedged at 1293.

It may go back down to 1272 and below it, getting stopped out. And you will think that you should have taken profits while the profits bore taking. But then you are playing isolated results and not theory. Theory and risk management demands we stay in the trade and let it ride. If anything, we should be adding, but as I mentioned above, I am not inclined to do so.
 
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