Trading idea (jpy with zb)

[rokka]

I'm short index futures, yen and some other futures.

Going to short 30y bond, and idea behind that is the divergence between JPY and ZB (ZB is reach compare to JPY). In terms of weight 1ZB=300k usd/jpy

Thoughts?

 

[nazzdack]

----short index futures, yen.....
----Going to short 30y bond....
----divergence between JPY and ZB....
----Thoughts?

1) These type of "spreads" should be thought of as separate outrights. :eek:
2) You could be a "champ" and make money on both legs, or, a "chump" who gets creamed on both sides of it.

 

[eurusdzn]

1) These type of "spreads" should be thought of as separate outrights. :eek:
2) You could be a "champ" and make money on both legs, or, a "chump" who gets creamed on both sides of it.

Why two seprate outrights? Cant one plan and size accordingly for what you describe? If a larger data set of the ratio or the difference line is shown then past
price performance can be used to measure risk just like any instrument.
Ths seems a very short time to analyze this spread. Has the spread broken out upside even in this window and maybe more importantly broken oit in a wider view
Due to fundamentals, changimg correlations ?

 

[rokka]

Update - so far parts are moving in right direction.

Although I'm just lucky in this case, didn't short ZB since was too busy with shorting everything else.

Only long 6J (means short JPY), that leg is working nicely so far.

 

[Martinghoul]

Good luck... Have you tried doing some regression to see how valid your premise for this trade is?

 

[rokka]

Good luck... Have you tried doing some regression to see how valid your premise for this trade is?

ZB caught down to JPY somewhat in Friday's session. Unfortunately I traded them separately, not how I planned in the beginning. Good new - I've made money on both sides.

And I haven't done any research, but its kinda obvious these two are highly correlated, so on medium timeframes it converges after "runaways"

 

[Martinghoul]

"Kinda obvious", heh?

Best of luck to you!

 

[rokka]

"Kinda obvious", heh?

Best of luck to you!

I knew you'll like it

 

[clacy]

Be cautious with this and watch closely for correlation changes. Correlation is always changing and you have 3 different components in this spread with ZB, $USD and Yen.

On a longer term this correlation can completely break down and these two can move opposite for weeks or months.

 

[rokka]

Be cautious with this and watch closely for correlation changes. Correlation is always changing and you have 3 different components in this spread with ZB, $USD and Yen.

On a longer term this correlation can completely break down and these two can move opposite for weeks or months.

Excellent point, there are indeed 3 components. My rationale was we have had recently run in usd and zb, jpy was dumped - so why not bet they will normalize against each other? Latter two started...

And you're also absolutely right, this correlation will break, I think ultimately rates will normalize but jpy won't be able to go up much. But I don't care about long term, I keep these positions for days, maybe few weeks max.