The S&P has topped !
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Quote from bone:
"the question isnt when you will go short...it is how many times did you get stopped buying the dip yesterday and perhaps today?... "
The answer is zero times.
Flat directional price risk is for suckers - not smart money. Relative value trading is much cheaper to capitalize and leverage, and of course a much more reliable trade in terms of consistent ROI.
Pure portable alpha returns.
May I ask why you're spreading $66k worth of XLE against one ES? You can see why that doesn't work, right?
Atticus, chillax. It's just one segment of a larger (equity/futures mixed) basket position using other futures contracts with an exchange SPAN margin credit of 85% on the initial performance bond margin. In terms of that pair in isolation, you could just as easily use SPY in lieu of ES, or several other alternatives including an ATM option spread for example (to sell off the theta and get that gamma kicker).
I lifted this brief explanation from the Hedge Fund Association:
" Market neutral investing is perhaps the purest form of alpha as, by definition, it removes exposure to market direction and produces alpha through security selection. It usually involves the simultaneous purchase of an undervalued security and short sale of an overvalued security. Thus, the return depends on the spread between the long and short positions. A bond market neutral strategy would hedge out interest rate risk, to ensure that gains from the long position, due to upward movements in bond prices, would be roughly offset by losses from the short position. Unlike traditional investing, which concentrates on absolute returns, or returns relative to a benchmark, market neutral returns depend on the spread or relative value between the securities bought and sold regardless of movements in market direction. An equity market neutral portfolio is constructed
similarly, but this time exposure to beta, the sensitivity of the
portfolioâs movement to the general market, is hedged. A true
market neutral fund will have to balance the beta on the long and
the short side to hedge out stock market risk effectively. A market
neutral approach can be applied to various asset classes, such as
equities, government bonds or mortgage-backed securities and
forms the basis for several investment strategies: convertible
arbitrage and risk/merger arbitrage. "
There is a gross misunderstanding on ET about how bank desks make markets, how commercials make dynamic hedging decisions, and in fact the strategies used by a majority of hedge fund PMs. Having been part of that world for half of my trading career, I have a bit of perspective in that regard.
I lifted this brief explanation from the Hedge Fund Association:
" Market neutral investing is perhaps the purest form of alpha as, by definition, it removes exposure to market direction and produces alpha through security selection. It usually involves the simultaneous purchase of an undervalued security and short sale of an overvalued security. Thus, the return depends on the spread between the long and short positions. A bond market neutral strategy would hedge out interest rate risk, to ensure that gains from the long position, due to upward movements in bond prices, would be roughly offset by losses from the short position. Unlike traditional investing, which concentrates on absolute returns, or returns relative to a benchmark, market neutral returns depend on the spread or relative value between the securities bought and sold regardless of movements in market direction. An equity market neutral portfolio is constructed
similarly, but this time exposure to beta, the sensitivity of the
portfolioâs movement to the general market, is hedged. A true
market neutral fund will have to balance the beta on the long and
the short side to hedge out stock market risk effectively. A market
neutral approach can be applied to various asset classes, such as
equities, government bonds or mortgage-backed securities and
forms the basis for several investment strategies: convertible
arbitrage and risk/merger arbitrage. "
There is a gross misunderstanding on ET about how bank desks make markets, how commercials make dynamic hedging decisions, and in fact the strategies used by a majority of hedge fund PMs. Having been part of that world for half of my trading career, I have a bit of perspective in that regard.
Hm look at that, uptrend is getting wrecked on the S&P now with complete disregard for support levels. Looked like the French had somewhat more respect for the holy uptrend but looks like the S&P is just going straight for the worst case.
I wonder how many trend-following hotshot kids are blowing up right now. Bet there's some margin calling going on here and there at this speed ^_^
I wonder how many trend-following hotshot kids are blowing up right now. Bet there's some margin calling going on here and there at this speed ^_^
Atticus, in the past 14 months I have worked with one HF and another large Chicago private equity firm who spread baskets of stocks against notionals every second of the trading day in an omnibus account for ridiculous size. Whether you do 507 shares of SPY or 1 ES contract, the primary concern is slippage and the ability to move size.