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Mad Hedge Fund Trader

China?s Firecracker Surprise

Diary, Newsletter, Research

Don?t waste your time trying to analyze financial markets right now.

There is only one ticker symbol you need to know about, that for the Shanghai Stock Exchange Composite Index, the ($SSEC).

When Shanghai goes up, the rest of the world?s risk assets happily join the party. When it drops, ?RISK OFF? fever goes pandemic.

China upped the ante this week when it allowed its currency, the Yuan, or the renminbi as it is known locally (the people?s currency), to float freely for the first time in 25 years. That produced a two-day devaluation of 3.6%.

In the very long history of currency debasements, this one was barely a whimper.

Ancient Sumerians used to shave the edges off of gold and silver coins 5,000 years ago.

When President Nixon took the US off of the gold standard in 1973, the dollar eventually fell 75% against the European currencies.

More recently, the Euro has given up 37% against the greenback, moving from a position of grotesque over valuation to dealing with the Greek credit crisis.

So Beijing?s move this week barely tips the needle in the official history of devaluations.

What it does do is create a giant psychological effect, and therein lies the problem.

Since June, the Mandarins in China have been pulling out all the stops to halt a free fall in the country?s share prices.

It has cut interest rates and relaxed reserve requirements. It banned high frequency trading, blaming the collapse on foreign short sellers (sound familiar?). It has even made stock selling illegal in roughly 94% of the country?s free float.

Still, the bears remain emboldened by their recent success.

By cutting the value of the Yuan, the government is providing a modest boost to the economy. A cheaper currency means less expensive exports and more of them, thus, making local businesses more profitable and creating jobs.

But not by much.

There are not a lot of products that live or die on a 3.6% margin. America has not just lost a chunk of its own exports from the additional competition, contrary to the claims of the TV networks and bogus newsletters with which I compete.

But by taking the first such move to undercut the Yuan in 25 years, it is showing the world how serious a problem is the stock crash.

Will the stock collapse feed into the main economy? Is 10% of the world?s GDP going into a Great Recession? Yikes!

SELL, SELL!

There are a few other problems with the Chinese firecracker.

It violates a secret agreement with the US government, made a decade ago, to allow a steady 3-4% a year appreciation of the Yuan against the dollar.

This was designed to slowly eliminate the artificial under valuation of the Yuan that gave the Middle Kingdom an unfair export advantage. The arrangement was responsible for the 20% rise of the Yuan since 2009.

(Sorry Donald, but you?re holding the chart upside down. Yes, I know, stock charts can be pesky things).

Reneging on the deal is ruffling feathers at the US Treasury in Washington. But it won?t amount to more than that, as long as it is temporary.

Which it will be.

China still has a massive trade surplus with the United States. In 2014, it totaled a staggering $343 billion. It maintained that heady pace, totaling $171 billion during the first half of 2015.

There are an awful lot of Chinese clothes, electronics, and toys sitting on the shelves of American retailers.

Its imports are falling, thanks to the collapse of the price of oil and other bulk commodities.

The natural state of the currency of any country running such huge surpluses is for it to rise in value. That will continue in China?s case for the foreseeable future.

Once the waters settle in the stock market, you can count on the Yuan to regain its upward path.

However, this isn?t going to happen in a day. It could be weeks or months until order returns to Chinese equity markets. Until then, expect some scary days there and here as well.

Compound these problems with the uncertainty over the Federal Reserve?s decision on interest rates in September and slower than expected US growth.

It certainly leaves traders and investors alike, with a full plate of issues to consider.

As if we didn?t have enough to worry about.

For some background on my 45 year coverage of the Middle Kingdom, please click here for my 2011 SPECIAL CHINA ISSUE.

CYB 8-12-15

SSEC 8-12-15

FXI 8-12-15

EWH 8-12-15

China - FirecrackerSurprise!

https://www.madhedgefundtrader.com/wp-content/uploads/2015/08/China-Firecracker-e1439470828256.jpg 272 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-13 01:05:262015-08-13 01:05:26China?s Firecracker Surprise
Mad Hedge Fund Trader

Trade Alert - (SPY) August 12, 2015

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

0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-12 09:55:082015-08-12 09:55:08Trade Alert - (SPY) August 12, 2015
Mad Hedge Fund Trader

August 12, 2015 - 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 Bill Davis, 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. Read more

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-12 09:20:232015-08-12 09:20:23August 12, 2015 - MDT Pro Tips A.M.
Mad Hedge Fund Trader

August 12, 2015

Diary, Newsletter, Summary

Global Market Comments
August 12, 2015
Fiat Lux

Featured Trade:
(A NOTE ON NEXT WEEK?S OPTIONS EXPIRATIONS)
(TESTIMONIAL)

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-12 01:05:382015-08-12 01:05:38August 12, 2015
Mad Hedge Fund Trader

A Note on Next Week?s Options Expirations

Diary, Newsletter

We have an options positions that is deep in the money, and I just want to explain to the newbies how to best maximize their profits.

This comprises:

S&P 500 (SPY) August $214-$217 in-the-money vertical bear put spread with a cost of $2.50.

As long as the (SPY) closes at $214.00 or above on Friday, August 21, the position will expire worth $3.00 and you will achieve the maximum possible profit.

This will worth out to a 20% gain, something you have been able to achieve in only 17 trading days. Better than a poke in the eye with a sharp stick, as they say.

In this case, the expiration is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.

Your broker (are they still called that?) will automatically use the long put to cover the short put, cancelling out the positions. The profit will be credited to your account on the following Monday, and the margin freed up.

Of course, I am watching these positions like a hawk, as always. If an unforeseen geopolitical even causes the (SPY) to take off to the upside once again, such as Janet Yellen announces that there will never be another interest rate hike again.

You should get the Trade Alert in seconds.

If the (SPY) expires slightly out-of-the-money, like at $214.10, then the situation may be a little more complicated, and can become a headache.

On the close, your short put position expires worthless, but your long put position is converted into a large, leveraged outright naked short position in the (SPY) with a cost of $217.50.

This position you do not want on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you put up a ton of new margin.

This is not what moneymaking is all about.

Professionals caught in this circumstance then buy a number of shares of (SPY) on expiration day equal to the short position they inherit with the expiring $217 put to hedge out their risk.

Then the long (SPY) position is cancelled out by the short (SPY) position, and on Monday both disappear from your statement. However, this can be dicey to execute going into the close.

So for individuals, I would recommend just selling the $214-$217 put spread outright in the market if it looks like this situation may develop and the (SPY) is going to close very close to the $214 strike.

Keep in mind, also, that the liquidity in the options market disappears, and the spreads widen, when a security has only hours, or minutes until expiration. This is known in the trade as the ?expiration risk.?

One way or the other, I?m sure you?ll do OK, as long as I am looking over your shoulder, as I will be.

Well done, and on to the next trade.

SPY 8-11-15

John ThomasWell Done and On to the Next Trade

 

 

?

https://www.madhedgefundtrader.com/wp-content/uploads/2015/07/John-Thomas3-e1437059748891.jpg 300 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-12 01:04:112015-08-12 01:04:11A Note on Next Week?s Options Expirations
Mad Hedge Fund Trader

Testimonial

Diary, Newsletter, Testimonials

Thank You John,

While I was away at a car show today, my sell order was filled for my iShares Barclays 20+ Year Treasury Bond Fund (TLT) August, 2015 $125-$128 in-the-money vertical bear put spread at $2.90.

I bought it at $2.62 after your Trade Alert. My profit was $2.89 - 2.62 = 0.27 x 3800 = $1,026.

Mort
New Jersey

Car

https://www.madhedgefundtrader.com/wp-content/uploads/2015/08/Car-e1439326775351.jpg 264 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-12 01:02:012015-08-12 01:02:01Testimonial
Mad Hedge Fund Trader

August 11, 2015 - 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 Bill Davis, 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. Read more

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-11 09:17:542015-08-11 09:17:54August 11, 2015 - MDT Pro Tips A.M.
Mad Hedge Fund Trader

August 11, 2015

Diary, Newsletter, Summary

Global Market Comments
August 11, 2015
Fiat Lux

Featured Trade:
(AUGUST 12 GLOBAL STRATEGY WEBINAR),
(MIXING WITH THE 1% AT THE PEBBLE BEACH CONCOURSE D? ELEGANCE)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-11 01:05:552015-08-11 01:05:55August 11, 2015
Mad Hedge Fund Trader

August 10, 2015 - MDT - NCR Alert

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 Bill Davis, 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. Read more

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-10 12:02:112015-08-10 12:02:11August 10, 2015 - MDT - NCR Alert
Mad Hedge Fund Trader

August 10, 2015 - 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 Bill Davis, 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. Read more

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-10 09:55:502015-08-10 09:55:50August 10, 2015 - MDT Pro Tips A.M.
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Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.

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