2014 Archive - Mad Hedge Fund Trader

Beware the ?Spinning Tops?

Winter is definitely over here in Incline Village, Nevada. When I started my daily ten-mile hikes from the Tunnel Creek Caf? ten days ago, I had to don snowshoes in the parking lot. Yesterday, I had to climb for two hours to find snow at 8,000 feet.

It?s definitely time to put my winter equipment into storage. The aspen trees are budding and yellow crocuses are breaking out all over.

That was also the conclusion of the killer April nonfarm payroll report, which brought in an eye popping 288,000. March was revised up from 192,000 to 203,000. Even more stunning was the plunge in the headline unemployment rate from 6.7% to 6.3%. It was a perfect number. Almost. We?re almost back to normal again.

I thought we were home free on our iShares Barclay 20+ Year Treasury Bond Fund (TLT) May, 2014 $113-$116 in-the-money bear put spread.
The blockbuster release should have driven a stake through the heard of the bond market.

And fall it did?.for about 15 minutes. Then news of the White House press conference announcing a further ratcheting up of tensions with Russia over the Ukraine triggered one of those rip your face off short covering rallies that have become so common this year. Prices for the (TLT) jumped to new 2014 highs, just short of our near short strike at $113. Stocks sagged.

If you had a mole at the Department of Labor who leaked to you the April nonfarm payroll a day in advance, you would have loaded the boat with long stock/short bond positions. Instead, we got the opposite. Welcome to a trader?s dull, brutish, and short life in 2014.

Throw bad news on the market, and if it fails to go down, you buy the heck out of it. That is a valuable lesson that I have learned over the decades, and I think it applied to the Treasury (TLT) bond market on Friday.

This was not weekend I wanted to go into short of bonds so close to the money. Putin is on a roll and appears to be willing to toss the dice once again. Now, he?s calling for a United Nations Security Council Meeting. Better to talk than shoot, I always say. It?s cheaper. I?ve tried both, and definitely prefer the latter.

If there has been another valuable lesson this year, it has been to keep positions small, and stop out of losers fast. So, as much as I hate to, I pulled the ripcord on my short, taking another nick on my performance this year.

?Markets can remain irrational longer than you can remain liquid,? said the great economist and primordial hedge fund trader, John Maynard Keynes. So true, so true.

The goal here is to maintain iron discipline in risk control and be the last man still standing when trading conditions improve and markets become easy again later this year. Until then, I?ll be engaging in small, short term opportunistic trades. I?ll also be doing a ton of deep research, building short lists of positions to Hoover up when life gets better.

Mind you, yields at these levels make absolutely no sense. They are predicting that deflation is now a permanent aspect of our lives. (To understand how that might be possible, read my interview in tomorrow?s letter with Google engineering director, Ray Kurzweil). Bonds are also shouting at us that we will remain stuck at a subpar 2% economic growth rate for years to come.

The inverse of bad news is also true. If you shower good news on a stock market and it fails to rise, you sell it. This suggests that a big dump in stocks is imminent, which is long overdue.

The markets certainly think this. Take a look at the chart below showing the ?spinning tops? in the S&P 500 in recent days, where shares trade across a wide range, but remain unchanged on the day. So named because the bar looks like a child?s toy, a spinning top suggests indecision among investors and a possible coming selloff. This is what happened in the beginning of March and April, opening the way for drops of 50 and 85 (SPY) handles.

This means that the ?head and shoulders? scenario I talked about a week ago is still on the table (click here for the article ?Watch Out for the Head and Shoulders?). That?s why I quickly knocked out a (SPY) June $193-$196 put spread.

In the meantime the media deluge for the upcoming midterm elections has already started, which are still five months away. Nevada governor Brian Sandoval is basing his entire campaign on his failed attempt to stop Obamacare in the courts. It is a strategy that will be repeated across the Midwest this year.

It sounds like this will be a good summer to stay out of the country. Sell in May and go away?

Going Into Storage

Beware the Spinning Tops

Follow Up to Trade Alert - (TLT) May 2, 2014

Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.

Further Update to: Trade Alert -(TLT)

Sell the iShares Barclay 20+ Year Treasury Bond Fund (TLT) May, 2014 $113-$116 in-the-money bear put spread at $2.42 or best

Closing

5-2-2014

expiration date: May 16, 2014

Portfolio weighting: 10%

Number of Contracts = 38 contracts

Throw bad news on the market, and if it fails to go down, you buy the heck out of it. That is a valuable lesson that I have learned over the decades, and I think it applies to the Treasury (TLT) bond market today.

The killer April nonfarm payroll bringing in 288,000 jobs should have driven a stake through the heart of the bond market. Even more stunning was the plunge in the headline unemployment rate from 6.7% to 6.3%. We?re almost back to normal again. I thought we were home free on our iShares Barclay 20+ Year Treasury Bond Fund (TLT) May, 2014 $113-$116 in-the-money bear put spread.

And fall it did?.for about 15 minutes. Then news of the White House press conference announcing a further ratcheting up of tensions in the Ukraine triggered one of those rip your face off short covering rallies that have become common this year, taking prices for the (TLT) to new 2014 highs just short of our near short strike at $113.

This is not the weekend I want to go into short of bonds so close to the money. Putin is on a roll and appears to be willing to roll the dice once again. Now, he?s calling for a United Nations Security Council Meeting. Better to talk than shoot, I always say. It?s cheaper.

If there has been another valuable lesson this year, it has been to keep positions small, and stop out of losers fast. So, as much as I hate to, I am pulling the ripcord. ?Markets can remain irrational longer than you remain liquid,? said the great economist and hedge fund trader, John Maynard Keynes. So true, so true.

The goal here is to maintain iron discipline in risk control, and be the last man still standing when trading conditions improve and markets become easy again.

Mind you, yields at these levels make absolutely no sense here. They are predicting that deflation is here to stay. They think that we will remain stuck at a subpar 2% economic growth rate.

They are also forecasting that a stock market correction is imminent. A big dump in stocks here, which is long overdue, could quickly add another couple of points to the (TLT). This is another reason to bail on bonds shorts. That?s also why I just knocked out a (SPY) June $193-$196 put spread.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don?t execute the legs individually or you will end up losing much of your profit.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.

Here are the specific trades you need to execute this position:

Sell 38 May, 2014 (TLT) $116 puts at?????$3.50

Buy to cover short 38 May, 2014 (TLT) $113 puts at..??.$1.08
Net Cost:??????????????????.....$2.42

Loss: $2.65 - $2.42 = -$0.23

(38 X 100 X -$0.23) = -$874 or -0.87% loss for the notional $100,000 portfolio.

Trade Alert - (SPY) May 2, 2014

Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more

Trade Alert - (TLT) May 2, 2014

Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more

May 2, 2014 - MDT - General Comments

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

May 2, 2014 - MDT - Midday Missive

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

May 2, 2014 - MDT Pro Tips A.M.

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

May 2, 2014

Diary, Newsletter, Summary

Global Market Comments
May 2, 2014
Fiat Lux

Featured Trade:
(JUNE 23 LONDON STRATEGY LUNCHEON)
(APRIL 23 GLOBAL STRATEGY WEBINAR),
(COME TO THE JUNE 13-14 INVEST LIKE A MONSTER LAS VEGAS CONFERENCE),
(SCAM OF THE MONTH)

Come to the June 13-14 Invest Like a Monster Las Vegas Conference

Diary, Newsletter

Please come to hear me, Mad Hedge Fund Trader John Thomas, as the keynote speaker at the Invest Like a Monster Las Vegas Conference on June 13-14.

I will be joined by many old friends from across the investment spectrum. Jon and Pete Najarian will teach you the tricks of the trade for navigating the ever complex options markets.

Fellow former combat pilot, Chuck Hughes, will go into depth on his own highly successful approach to trading the market. To listen to my in depth interview with him on Hedge Fund Radio, please click here.
Well known market commentator Guy Adami, the Prince of New Jersey, will be there to give his trading insights. So will former hedge fund manager and Yahoo Finance guru Jeff Macke.

The first day will be devoted to three educational sessions that get into the nitty gritty of trading options. The day winds up with a cocktail party with the Najarian Brothers and me.

I will kick off the Saturday session with and extended presentation on the long-term future of the financial markets, to be followed by an extensive question and answer session. I will be followed by an impressive lineup of market veterans.

The event will be held at the Bellagio Hotel on the Strip, my favorite Las Vegas haunt, best known for its spectacular water fountains out front. You may recognize it in the hit movies The Hangover and Ocean?s Eleven.

General admission costs $499 for the two full days. You can buy a VIP ticket for $699, which includes social events with the high and the mighty. It is all great value for the money, given the quality and quantity of the information you will obtain. Just click here: http://www.optionmonster.com/events/?refId=186 to buy tickets.

Trademonster?s proprietary program, called Heat Seeker ?, monitors no less than 180,000 trades a second to give an early warning of large trades that are about to hit the stock, options, and futures markets. To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes, every 33 minutes.

The firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. The firm then distills this ocean of data into the top movers of the day, which is put up for free on its website, and offers much more detailed analysis through a premium subscription product.

?As with the NFL,? says Jon, ?you can?t defend against speed.?

The system catches big hedge funds, pension funds, and mutual funds shifting large positions, giving subscribers a peak at the bullish or bearish tilt of the market. It also offers accurate predictions of imminent moves in single stock and index volatility.

Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that?s like a steel vice grip. Maybe it was his brute strength that enabled him to work as pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of ?DRJ.? He formed Mercury Trading in 1989 and then sold it to the mega hedge fund, Citadel, in 2004.

Jon developed his patented algorithms for Heat Seeker? with his brother Pete, another NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.

June is a great time to visit Sin City, as the crowds are largely gone and the sun is wonderfully baking hot. You can ride the neck-breaking roller coaster at the New York New York Hotel, catch one of eight Cirque du Soleil shows, and ride a gondola at the Venetian Hotel.

Or you can try to get a great deal on a luxury item from my buddy, Rick Harrison, at the famous Gold and Silver Pawn, of Pawn Stars fame (good luck with that!).

Just be sure to bring extra sun tan lotion!

May 1, 2014 - MDT - Midday Missive

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.