Shortie's 10 Best Market Calls

[shortie]

Quote from LEAPup:

What made this trade "genius?" I don't see an entry/exit on your chart, btw.

the trade was opened THIS morning!
the chart is from last week

at the open today the ratio bounced up and i am actually ~0.6% worse positioned (in stock equivalent) had i taken the trade friday at close (when the chart was made).

p.s. i may have labeled it "genius" prematurely since the trade is still very much in progress. but i feel very good about this one.

 

[tradingjournals]

Excellent post shortie. Thanks for sharing. What are the IVs on the SPY calls and on the GLD puts you bought?

 

[tradingjournals]

Quote from LEAPup:

What made this trade "genius?"

I would have not known the observation if I did not read this thread, and/or the poster did not share it. I find it one of the few best observations I have read on ET over the last few months.

 

[shortie]

Quote from tradingjournals:

Excellent post shortie. Thanks for sharing. What are the IVs on the SPY calls and on the GLD puts you bought?

SPY Call:
Implied Volatility Delta Gamma
20.16 0.68 0.02
Rho Theta Vega
0.38 -0.02 0.32

GLD Put:
Implied Volatility Delta Gamma
19.78 -0.68 0.02
Rho Theta Vega
-0.59 -0.02 0.38


I did not attempt to use any of the info to pick the strikes. Are you saying it is a good idea to match implied volatilities? incidentally, they are very close.

 

[shortie]

Unrealized PL +$91 after today's SPY:GLD spike.

My justification for the call is in the chart: behold Bernanke Line!.

I postulate the existence of what I would like to refer to as Bernanke Line (the term is copyrighted by me). The line is not visible on SPY but becomes obvious when SPY is normalized by GLD. The origin of the level may be traced to Feb 2009 weekly Gap when the market apparently attempted to go into a free fall. This suggests that the line may be a critical level indicating the health of the stock market (but it might have been just a coincidence).

Fast forward to Post-May-06 crash selloff: we have 1st bounce off the Line in June - confirming its significance (at this time Ben is watching intently). The market bounces up, but QE2 is already in the works (just in case).

2nd re-test in Aug 2010 - this is getting dangerous so QE2 rumors unleashed. The market bounces up and bounces yet again later that year around when QE2 is actually announced.

As we can see right now the market is basically at Bernanke Line again. I postulate that yet again it will be defended AT ALL COSTS (rumors of QE3, rumors of whatever else, actually Fed intervention in whatever form, etc.).

Given the above, it is a safe bet to initiate 1:1 ratio Long SPY : Short GLD trade (done here via ITM Dec Options) as shown in this journal. Of course I could be wrong and Mr. Market will surely point this out to me soon.

Notice that one must look at SPY:GLD chart to see what I am talking about. SPY chart is misleading.

 

[tradingjournals]

Your title is nice. Note that if a bird were to drop his white load on a printed version of your article, and if by miracle it were to land on the N of the word "Line", you can get a related title that I bet Ben's critiques might not hate to read.

I like your post very much to the point I am tempted to write a related article on my blog. If it is allowed to use your chart, I think it can form a nice picture in the article.

 

[tradingjournals]

Quote from shortie:

SPY Call:
Implied Volatility Delta Gamma
20.16 0.68 0.02
Rho Theta Vega
0.38 -0.02 0.32

GLD Put:
Implied Volatility Delta Gamma
19.78 -0.68 0.02
Rho Theta Vega
-0.59 -0.02 0.38


I did not attempt to use any of the info to pick the strikes. Are you saying it is a good idea to match implied volatilities? incidentally, they are very close.

I almost missed this post as I read the latest one on my earlier visit here. I asked about IV to roughly know the level of IV you bought at. It is not bad, but if market rises, I would expect it to fall, unless you are in the money, then skew might help.

Why you did not use straight shares or sell SPY puts and hedge by short GLD calls so that you short IV and time works for you? I am guessing that limited upside of the latter, higher margin might have been a reason?

 

[shortie]

Quote from tradingjournals:

Your title is nice. Note that if a bird were to drop his white load on a printed version of your article, and if by miracle it were to land on the N of the word "Line", you can get a related title that I bet Ben's critiques might not hate to read.

I like your post very much to the point I am tempted to write a related article on my blog. If it is allowed to use your chart, I think it can form a nice picture in the article.

sure feel free to use the image. looking forward to your article!

 

[shortie]

I have fixed the typo on the image

 

[shortie]

Unrealized PL -98, taking on the chin here. Notice that despite the violent SPY selloff, the ratio held the famous Bernanke Line. Thus, the original concept behind the trade is still intact. Nothing to do.

I will throw in a little bit of speculation here:
Today we had a nice VIX spike suggesting that SPY bounce is near. GLD strength could be the panic flight. So both could reverse any time now, moving the spread significantly in the right direction.