Monthly Archives: November 2013

Bitcoin Parabolic

It’s hard for me to resist the Bitcoin story. A few months ago I calculated that mining Bitcoins would cost more than the electricity needed to run the mining computer (here).

Today that’s no longer the case. Look at this 5 day chart.

Bitcoin Surges

What should we make of this?

It’s starting to feel like 1999 – just different.

  • The S&P (and most indexes ) only climb
  • IPO Excitement – see TWTR
  • High School Kids Trade Forex and CFD’s
  • QE +++
  • Housing Bubble (This time is different)

Bitcoin is what makes this all extra amusing. The press has grown tired of the story. Why? I have no idea. I guess I’ll turn on the miner tonight…

Trading Timeframes

Due to a recent request to publish a video, I’ve dropped in a ‘quick n dirty’ here. I talk about trading timeframes, classic setups, and market differences. A rough cut, I admit.

Most of the books I’ve read don’t spend enough time on timeframe. The fastest way to lose money is adjusting your trading timeframe when a trade goes against you. I try to drive that point home, it’s important. The second point I try to make is that different markets behave differently. The same setups don’t work the same across markets, as you’re lead to believe.

I talk for a bit about GC and how even with the best setup, Gold is a market which will devour a stop order.

I hope you enjoy the video, I’ll publish more and better videos, soon.

Good Trading.

Following a $6.7 Million VIX Call Spread

On October 18th Bloomberg published an article (here) about a trader or institution that bought 160,000 February 24 calls and sold February 29 calls (in equal measure).  The open interest today is at 170,000 and the cost for the trader on October 18th was 42 cents per contract or $6.7 Million. I’m following this trade for fun.

It was very likely a hedge against the SPY (or maybe some SPX futures?). Almost 30 days later the pair would trade at about the same price but what’s interesting is to imagine what this trader/institution had on the other side.

Look at the 6 month VIX and SPX chart below.

VIX-SPX-Call Spread

The SPX is up about 50 points since October 18th and the VIX has barely budged from 13. What would the hedge be? Long SPX or short SPX? It’s a call spread so presumably long SPX (remember VIX has a pseudo inverse relationship with the SPX). The hedge will make money as volatility increases and a quick look at the chart above shows strong resistance at 13.

So how many shares of the SPY (or SPX futures) would you own, if you put in place a $6.7 Million hedge? That’s a good question…  But whatever their long position even 30 days later, it looks like a good trade.