The ACD Method
- Thread starter sbrowne126
- Start date
It's very hard to imagine these bonds going higher but mathematically they can. If we were to have a serious selloff and re-test the lows, the long bond would probably trade north of the 160 handle. That's amazing.
I will be on my platform tomorrow, just in case! I was thinking the same thing!
CNBC is running live coverage tomorrow into the European close!!!!
Quote from Quon:
The real question is, how can I choose between that and the parade? I mean c'mon!
Depends how leveraged you are.
Please Maverick, could you to explain this further? What's the relationship between a dollar neutral spread and your position in it's volatility? And also, how could you be short volatility in a pair trade taking into account those factors?
Thank you!
Happy Thanksgiving. This year I am thankful for lots of things, one of them being this thread and the generous traders, especially Maverick, that have really improved my trading by sharing their experience and knowledge.
Mean reversion is another term for short volatility. I don't like playing mean reversion. You are basically selling premium. Make nickels and lose dollars. Mean reversion traders are generally volatility neutral in that they are trying to capture the "excess" volatility in a pair.
I want to be long volatility. I want to make dollars and lose nickels. There is another difference though. Usually mean reversion traders are trading highly correlated relationships. Where as mine are "loosely" correlated. For example, trading Coke and Pepsi. Let's say they have a correlation close to 1 and ideally you would trade that pair with the same volatility parameters. I might trade long AAPL against short Copper. Both being fairly correlated to SPY as they are both risk assets. But by no means should AAPL and Copper move lock step with each other.
An easy way to know if you are long or short volatility is just see what your p&l would do if a large outsized move happened to your pair. Usually a mean reversion trader will get killed in that scenario. If I'm long AAPL and short Copper and risk assets sell off hard, Copper could fall 30% while AAPL might sell off 10%. I'm synthetically long volatility in that spread. A stat correlation trader might be short Copper and long FCX which are very correlated. If Copper starts to sell off hard, he might be looking to buy Copper and sell more FCX "hoping" the pairs reverts back to the mean.
Just different ways at looking at the market. Neither one is right or wrong. Some people like to sell premium.
Thanks baggerlord. Happy Thanksgiving to you too and everyone else on this thread. Three hundred pages plus and no trolls. We have a lot to give thanks for!