Signal of the coach: go long at 830am if yesterday you had a positive VWAP. If not, do nothing.

 

from July 3rd to November 5th.

Result: It would have been better parking the money on a long position get it out today. The market return was higher and we are not considering transaction and slippage costs.

 

You might say: try leverage!

Well I am not sure with this facts:

z value: 1.05

w/L ratio: 1.29

 

So what I will do is run the whole process back testing the adverse intra day scenarios. Leverage to use will be 1:3 since the max loss is -3.7% then that would be 12% draw.

Any way the short z value tells me that with leverage I just will turn figures up. Unless I systematize the leverage: check if the strategy has a pattern to increase positions because of a given opportunity.

 

Also using only price, and a good z-value means some supply/demand effect converted intro profits.

67 day correlation between CL and HG is 0.60. 1400 day correlation is 0.37. This is saying that both commodities have been extremely friendly each other and that is not regular.

 

This is a paper trade of 90 days, so I will chose January options:

I will be willing to risk two thousand dollars and would be satisfied with with a R of 3, so a profit of six would be a like double play in a tied game.

 

B 1 CLF10-9500C @ 1.08

B 1 HGF10-240P @ 0.08

Debit account if margin would equal 100% = -1.08*1000 -25000*0.08 = -$3080 minus fees and commissions.

 

I should notice that I am seeing CL and HG but actually I would be trading derivatives on these futures; i.e. options prices might not be correlated and risk is being amplified.

 

The fact that both positions will be long options doesn’t mean risk of loss is being reduced because of greek fundamentals. I mean, The max loss would be 100% of the position, but the probability of hitting -100% is higher, so the trade is actually quite maverick-like. Using futures volatility is high, but liquidity risk is lower.

 

 

 

According to my position, both red and blue line will go up. Maybe it would better using spreads instead of naked long options.

 

 

THIS POSITION WILL BE CLOSED ON FRIDAY DECEMBER 18 2009.

I happen to be a teacher in a futures workshop for UFM’s business school for the students on the financial carrer, MFIN. We checked the Amaranth’s case and we came up with the idea of replaying this strategy.

 

Amaranth’s leverage, according to the written case published at a financial journal, was 1:5. There you can see a little negative spike of -$3700 to -$6040, meaning a 60% movement against the position. Using a 1:5 leverage means that we control $100 worth using, or having, only $20; so if the position moves 5% against us [which is quite natural in this mkt] we are losing 5/20 or 25% of the position.

What seems was the Amaranth’s case is that they got at leas a 50% adverse move which means an imminent wipe out.

They got plenty of margin calls, phone calls from the exchange and all of that ended in convocation of other nat gas traders to take care of these positions.

As the chart can tell, months later, the trade was a pure winner, but the trader wasn’t because misuse of leverage.

This make thing of a baseball play. Two men on base, double play setup in the infield. I am a left hand pitcher facing a right and weak hitter. As I prepare for facing the hitter, the center fielder stars arguing with the short stop about his way of playing. They finally calm down, although the SS refused to hear what the other guy was saying, so I come up with the pitch [inside fastball] and nice and easy ground ball goes by the short stop position, but he couldn’t get it because did not move himself as the CF was telling him. Nice strategy, poor risk management. We ended up facing about 5 more hitters and finally lose the game.

When the hitter and the pitcher get to 3 balls and two strikes both of them will tend to show the best they have to win the battle. Although I think it’s pretty obvious the 2 weeks direction for this market: range to downwards.

 

Have to think about the stoploss.

a) 1% in the price. [ which is quite too little for this CL]

b) how many ATR and what time frame. I should set up the stoploss strategy right now and re-evaluate that system.

I feel that I can’t resume my market thoughts so often like other traders. I know I am no a full time trader, but I see markets all the time.

 

By now I am in a situation like I was in the batting practice two weeks ago: when it came the second turn take 24 swings in the batting cage, bi the 5th swing I couldn’t continue as solid as the other contacts with the ball. I couldn’t move the arms and the shoulders to meet the ball with my momentum because of lack of energy.

 

Same here at blogging. I need more conditioning in both sides of this speculative life. The curious thing here is the role that alimentation has: A good eating system will create good opportunities for both developing the physical conditioning for a decent batting practice and for a vividly experience in the market’s sessions.

 

 

 

Since friday at 7am [9am ny] we saw a spike in the volume. Then we got this pattern of trending up all day long. Possibly there was a lot of buying for somebody big.

What can we infer about that looking since friday 4u until today thu 10u?