Pabst's Blue Ribbon Trades

[Pa(b)st Prime]

Quote from atticus:

Swing trade a 3-5 day duration. Were bonds worth 124 during the LTCM/Asian contagion? Use options into your edge.

Treasury futures back then were of the old (original) 8% coupon. Hence a higher futs price then for the same hypothetical yield today. Ironically RA those Oct/98 prices are the same as where we are now! The 30yrs low yield was 4.50 in 1998. The hypothetical 6% futures price would've been 113 (different carry).

I agree about the swing trading. Isn't the essence of this shit to just be a day ahead of the curve (crowd) on the turn/breakouts? It's not rocket science, eh?

Options on ZB and ZN carry a similar handicap to SPX. The screen is the outside market. Plus the pit isn't as tight as they could be. There's just not enough retail flow that they care to be magnanimous. (Corn ops are tighter)The guy making markets on 1000 straddles isn't going to be 34-35 on those 20 otm puts. I know I shouldn't care about giving up an edge but.....

 

[atticus]

Quote from Pa(b)st Prime:

Treasury futures back then were of the old (original) 8% coupon. Hence a higher futs price then for the same hypothetical yield today. Ironically RA those Oct/98 prices are the same as where we are now! The 30yrs low yield was 4.50 in 1998. The hypothetical 6% futures price would've been 113 (different carry).

I agree about the swing trading. Isn't the essence of this shit to just be a day ahead of the curve (crowd) on the turn/breakouts? It's not rocket science, eh?

Options on ZB and ZN carry a similar handicap to SPX. The screen is the outside market. Plus the pit isn't as tight as they could be. There's just not enough retail flow that they care to be magnanimous. (Corn ops are tighter)The guy making markets on 1000 straddles isn't going to be 34-35 on those 20 otm puts. I know I shouldn't care about giving up an edge but.....

I remember sitting in the Doc's office awaiting an insurance physical when they hit 124. I realize it's a nominal yield, but it's apples and oranges. They were a dot-shot for 12 handles during that crisis.

The atm combo is 4-wide on ecbot. Watch the screen and trade inside on the pit contract. Bond straddles aren't a sell, FWIW.

I cleared 900k in 1995 in one quarter in bond options by taking the market on combos that were 6-wide. Execution is a red-herring.

You want an 8-tick guarantee? Sell Dec FF. You've missed 7 ticks, but it's still worth 8 and a home-run if no cut.

 

[Pa(b)st Prime]

Quote from Spectre2007:

whats your position biases now PB? going into FED meeting and post FED meeting.

I'm glad you're here Spectre. I'd like to discuss some things.

My bias is to be short Treasuries into the meeting. Really more of a "fractal" thing. Those rallies in 05 and 06 both had 3pt resolutions to their 10 point initial rallies. without fresh news I see little to propel the long bond to 4.50. For now.

The cut will be .25 with language completely ambiguous about further action. Greenspan's new book apparently details a very important trend that I've noticed globally. Liberal politicians are not going to be thrilled with restrictive CB's fighting inflation during recession.

IMO, the Fed has NO IDEA (neither do we) as to the future. Hawks are yelling about the Fed "bailing out institutions" (it's the Fed's most important function) but at the same time if Gold was $300 and Oil $27 we'd be focussed front and center on that piss poor-harbinger of things to come-employment report. The economy is precipitously slowing.

Many folks are already saying the Fed is impotent in controlling inflation. Non sense. Inflation is caused by a cheap dollar and global consumption out pacing product availability. High rates in America will choke off dollar bears and Chinese car buyers at the knees. One could EQUALLY argue that low rates will do little to bail out an economy that's entering a cyclical (secular perhaps) down turn. The Miami condo market doesn't hinge on the diff between 5 or 4.75 Funds.

I'd like to hear your views on the implications that Fed policy will have on prices. I presume Gold moves tick for tick higher with 2yr and EUR prices on ease assumptions. Will 25 with hawkish talk bring stocks down too much? Can commodities break and equities not. Is this stock rally predicated on lower rates? Is $80 crude predicated upon 1500SPX?

 

[atticus]

Quote from Pa(b)st Prime:

The Miami condo market doesn't hinge on the diff between 5 or 4.75 Funds.

You're right of course, but it is the result of credit, not liquidity. The perception becomes the reality. Is mom and dad going to retire to a FL condo based upon a quarter on FF? I would bet that the average mort on bankrate will post a higher week over week yield next Friday.

 

[Pa(b)st Prime]

Quote from atticus:

I remember sitting in the Doc's office awaiting an insurance physical when they hit 124. I realize it's a nominal yield, but it's apples and oranges. They were a dot-shot for 12 handles during that crisis.

The atm combo is 4-wide on ecbot. Watch the screen and trade inside on the pit contract. Bond straddles aren't a sell, FWIW.

I cleared 900k in 1995 in one quarter in bond options by taking the market on combos that were 6-wide. Execution is a red-herring.

You want an 8-tick guarantee? Sell Dec FF. You've missed 7 ticks, but it's still worth 8 and a home-run if no cut.

That month was like a visit to the proctologist for me too.

You hit upon my fear bro. While TODAY the world is safe benign place for a Bond short, who the fuck knows if a money center bank isn't a month away from trouble, or if stocks aren't 20 SPX handles away from prices they'll never see again, ect. In that case who's to say Bonds can't be 4.30 no matter what Fed policy is.

You couldn't be more right about those spreads. When I bought those SP (I did pit contracts) options in July i gave up the most wicked edge imaginable. I got frustrated after missing the middle and paid the offer on the low futures tick of the day, lol. I was out a point that night (not an easy feat on an otm put spread with 5 weeks to go!). A week later my fill price little mattered.....

 

[atticus]

Quote from Pa(b)st Prime:

That month was like a visit to the proctologist for me too.

You hit upon my fear bro. While TODAY the world is safe benign place for a Bond short, who the fuck knows if a money center bank isn't a month away from trouble, or if stocks aren't 20 SPX handles away from prices they'll never see again

You've answered your own question. Trade shorter durations. Equity vol is where it's at. NDX or ES.

 

[Pa(b)st Prime]

Quote from atticus:

You're right of course, but it is the result of credit, not liquidity. The perception becomes the reality. Is mom and dad going to retire to a FL condo based upon a quarter on FF? I would be that the average mort on bankrate will post a higher week over week yield next Friday.

I bet you're right. All it'll do is inspire MORE panic as the spreads auto-widen 25bp.

The more I think about it, what a facetious fucking gesture the whole thing truly is. Complain about low savings rates, force folks into risky investments (shit both of us would be doing a LOT less trading at 15%) while paying savers NEGATIVE dollar rates of return. Wait! I'm channeling Timmy McViegh...

 

[dhpar]

Quote from Pa(b)st Prime:

Rather than be a duplicitous fuck, I'll give you the down and dirty. Until the day before the discount rate cut, my account was as high as 240k. Today it's 90k.
etc etc

uh oh. i am really sorry to hear that.
I will suggest the same thing I said 1 day before the employment report... if you are too anxious scale down the position.
Ironically, about a month ago, I suggested that ZB is not going to be fashionable before mid September's inflation data - and I still believe that. Inflation is going to pick attention again imo - and only then you want to be short ZB. So not the best time to scale down but it look like you left yourself no margin for error.

I probably sound like a smart ass now. Well, be assured I had tough times as well. I did the first mistake in July - leaving on long holiday with no access to any communication I put on some shorts in the short end. After I returned I could not belive what I saw - I was down about $200k. My first (wrong) reaction was: what a great level - let's double down (in simple words). Well on Aug 16th I was down another $300k!

At that time I stopped feeling comfortable - in fact I felt suicidal. It was almost all my YtD profit. I scaled down a bit but continued to do junior's mistakes like my Sep FF/ED spread which I intended to hold to maturity but had to close after 1(!) day with $30k loss. Looking back this trade ultimately saved me because I realized that I completely lost any perspective and sense.

In other words all my mistakes were similar - playing the big game as before with volatility up 100% and my confidence level down 99%. Since the end of August I scaled back my position about 70%, refocused and started to make back some money old fashion way - always adding into the trend and taking small losses (and small profits at the end of the day). I made back about 50% of what I lost and I now feel more comfortable to increase my game a bit (also lower volatility and deeper markets help).

I try to be positive. After all as a perma short there can hardly be a better place than the market around 4%. I am looking forward to the next week - after all I have a small position.

 

[dhpar]

I agree with atticus that it is easier to trade shorter durations recently. On top of that fed funds futures seem to be easier to read than 2yr (flight to quality, oil money etc.) and they have sort of some floor (2yr can trade at negative yield after all).
In fact about half of my position is in fed funds futures now. I am not sure Dec is the best. Maybe after yesterday but it is quite far into the future and the juice is not there. I would go shorter (like Oct which is my favorite because it is so clean) or longer (for max juice).

I am much more bullish on stocks (and economy) than you - which kind of saved me some money. I think the next week stocks will not be down - irrespective of the meeting results. In fact the only thing that matters are earnings/disclosure of brokerages.


I put some comments here as well but I start to be tired about all this cut discussion:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1606434#post1606434

 

[Spectre2007]

I've been thinking long and hard about what will happen. I can only see a 25 basis cut, and talk about vigilance against inflation, but will react appropriately with new data, implying reactive intentions instead of preemptive policies. This points to a bond market rally on ten years to close to 4%. Before the long term rally and further FED cuts can bring about changes in employment.

Either way a reactive FED means recessionary fears are more apt, then inflationary fears. This is inline with supporting the bond market, since continued debt financing is crucial for this country. One way to fuel demand for your debt is to run the country into the ground.

This implies being short equities would be more prudent after the decision is out, being short going into FED meeting was where you problem was, I understand your reasoning, but it was too preemptive. After the FED decision, dollar will rally, bonds will rally, equities will get killed, gold will get killed. Thats what Bernies policies project out for the next few months. If he does a 50 basis cut, then opposite of those trends will occur. Stocks will rally, bonds will get killed, dollar will get killed, gold will rally. But this is just the initial reaction. The market will construe things are worse off since a 50 basis was needed, then opposing trends will take a foot hold, bonds will rally, stocks get killed, gold will rally, dollar will get killed. Either way, the long term trend is stocks getting killed, and bonds rallying. I remember the '95 spike too, I was there in the midst of it.