Monthly and QTR A down for me. I've got 100 better stock plays then that one. Let that one be till next year.
The ACD Method
- Thread starter sbrowne126
- Start date
Monthly and QTR A down for me. I've got 100 better stock plays then that one. Let that one be till next year.
EUR/AUD confirmed 3 days ago. The confirmation sent it through it's QTR A up as well.
No. So let's make sure we understand what this is. The TED spread essentially captures the difference between a risk free rate and risk rate. Granted the risk rate is very low risk itself but still more risky then a risk free rate. LIBOR is the rate at which other commercial banks agree to lend to each other. It's not technically one rate. LIBOR is actually a survey of an avg rate from a list of banks. When credit freezes banks are not going to lend to each other anymore, or at least not at a low rate, so rates go up. But the government will lend. The liquidity is always with the Fed. So what the TED spread is showing you in reality is a measure of the liquidity gap between bank lending rates and government rates. I can't imagine what scenario would happen were governments couldn't lend but commercial banks would.
Now, let's make sure we understand this next point. Your long option DOES have risk. As you saw from that chart, you could have been long from much higher prices and held all the way down waiting for a pop. As that spread narrows from 70 bp to 60 to 30 to 15 you are losing money. Sure, it looks small in bp terms but how many of these bad boys would you have have on with such small margins. Probably a lot. So even a drop from 30 bp to 25 could really hurt.
My point being that it's the ultimate long option is that it doesn't decay the way a OTM put would decay and it is not going to run in your face the way a short ES position can (see recent ES chart).
hey mav..as usual being quite articulate; you have some real nice "content".
seeing i am always trying to replicate long vol against short vol; i haaaave to look at this.
thanks.
Before all you guys go running in there trading this stuff, please understand I'm only giving broad explanations of this stuff on here. The devil is in the details as they say. For example, when you trade the TED spread, Eurodollars and treasuries have different term structures. Eurodollars are strips of time. Treasuries consist of one term structure. So to replicate a treasury strip you need to combine the Eurodollar strips to match the term structure of the treasury. It's very easy to do this with Eurodollars as they trade packs and bundles. For example a pack is strip of 4 consecutive contracts stacked on top of each other to form basically a one year term structure. A bundle stacks the packs on top of each other to form years. So if you wanted to trade a two year treasury note and a 2 year libor structure, you would sell the first 8 eurodollar contracts. There are several ways to do this. And CD, this is why I mentioned in another thread about prop firms because this is how firms actively trade this stuff. But you could go in and manually sell all 8 ED contracts. You could sell the first two packs (4 contracts each; one for each month) or you could sell the bundle which simply combines the two packs. Traders actively trade these combos all day to earn a tick or more accurately, half a tick, while legging these spreads. All these spreads can be synthetically created and replicated depending where the edge is.
Anyway, back to the TED spread, please understand the term structure difference. But eurodollars are strips of 90 days of time. You have to stack the strips to build a forward curve. And also as a disclaimer, I am NOT the expert on this. I'm just providing some basic info.
But for the rest of you guys out there who don't want to trade this, I cannot emphasize this enough. I have pleaded with the readers of this thread to expand your periphery of markets beyond stocks and index futures. You HAVE to watch the currency markets. You HAVE to watch things like the TED spread. You HAVE to watch the VIX. These markets provide EXCELLENT tells on what risk is going to do going forward. I'm telling you this right now, your trading will improve 10 fold if you start doing this like clockwork. I promise you.
Anyway, back to the TED spread, please understand the term structure difference. But eurodollars are strips of 90 days of time. You have to stack the strips to build a forward curve. And also as a disclaimer, I am NOT the expert on this. I'm just providing some basic info.
But for the rest of you guys out there who don't want to trade this, I cannot emphasize this enough. I have pleaded with the readers of this thread to expand your periphery of markets beyond stocks and index futures. You HAVE to watch the currency markets. You HAVE to watch things like the TED spread. You HAVE to watch the VIX. These markets provide EXCELLENT tells on what risk is going to do going forward. I'm telling you this right now, your trading will improve 10 fold if you start doing this like clockwork. I promise you.
USD/JPY anyone?
GBP/AUD?
EUR/AUD?
On the move.
Watch that Nikkei. It's making an assault on the highs on the back of the weak Yen.
GBP/AUD?
EUR/AUD?
On the move.
Watch that Nikkei. It's making an assault on the highs on the back of the weak Yen.
all i do term structure (exclusively) trading and analysis thereof; and as the yr comes to an end i do like to open my eyes a bit on other products.
your point of deep understanding and analysis before taking a trade can never be underestimated....and once you can master product the feeling when you earn after all that work is very gratifying.
happy holiday mav
your point of deep understanding and analysis before taking a trade can never be underestimated....and once you can master product the feeling when you earn after all that work is very gratifying.
happy holiday mav