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Tag Archive for: (VXX)

Mad Hedge Fund Trader

Volatility Here is Peaking

Diary, Newsletter, Research

It is often said that the stock market has discounted 12 out of the last four recessions.

While the market is discounting another recession now, I believe it is one of the many previously forecast that will never happen, a lot like to 18% swoon in the futures markets we saw last summer.

If anything, the reported hard data are showing that the economy is strengthening now, not weakening. The December nonfarm payroll hit a one-year high at 292,000. Christmas sales were off the charts for online merchants.

Auto production topped an 18 million rate. And this is an industry that was bankrupt only seven years ago.

But what else would you expect from a global economy that just has a $2 trillion annual tax cut dumped in its lap, thanks to lower energy prices.

I therefore think we are within days of the final capitulation of this move. That means the Volatility Index (VIX) will peak as well, probably around $30, the top that defined the top of every spike for all of 2015, except for the August 24 flash crash day. That apex is probably only days away.

I am one of those cheapskates who buys Christmas ornaments by the bucket load from Costco in January for ten cents on the dollar, because my eleven month theoretical return on capital comes close to 1,000%.

I also like buying flood insurance in the middle of the summer when the forecast here in California is for endless days of sunshine.

That is what we are facing now with the volatility index (VIX) where premiums have just doubled, from $15 to near $30. Get this one right, and the profits you can realize are spectacular.

Watch carefully for other confirming trends to affirm this trade is unfolding. Those would include a strong dollar, collapsing stocks, and oil in free fall, and a weak Japanese yen, Euro.

I don?t know about you, but I am seeing seven out of seven cross asset confirming price action.

The CBOE Volatility Index (VIX) is a measure of the implied volatility of the S&P 500 stock index, which has been rallying hard since oil began its precipitous slide three weeks ago.

You may know of this from the many clueless talking heads, beginners, and newbies who call this the ?Fear Index?. Long-term followers of my Trade Alert Service profited handsomely after I urged them to sell short this index three years ago with the heady altitude of 47%.

For those of you who have a PhD in higher mathematics from MIT, the (VIX) is simply a weighted blend of prices for a range of options on the S&P 500 index. The formula uses a kernel-smoothed estimator that takes as inputs the current market prices for all out-of-the-money calls and puts for the front month and second month expiration's.

The (VIX) is the square root of the par variance swap rate for a 30 day term initiated today. To get into the pricing of the individual options, please go look up your handy dandy and ever useful Black-Scholes equation. You will recall that this is the equation that derives from the Brownian motion of heat transference in metals. Got all that?

For the rest of you who do not possess a PhD in higher mathematics from MIT, and maybe scored a 450 on your math SAT test, or who don?t know what an SAT test is, this is what you need to know. When the market goes up, the (VIX) goes down. When the market goes down, the (VIX) goes up. End of story. Class dismissed.

The (VIX) is expressed in terms of the annualized movement in the S&P 500, which today is at 1,800. So a (VIX) of $14 means that the market expects the index to move 4.0%, or 72 S&P 500 points, over the next 30 days.

You get this by calculating $14/3.46 = 4.0%, where the square root of 12 months is 3.46. The volatility index doesn?t really care which way the stock index moves. If the S&P 500 moves more than the projected 4.0%, you make a profit on your long (VIX) positions.

Probability statistics suggest that there is a 68% chance (one standard deviation) that the next monthly market move will stay within the 4.0% range. I am going into this detail because I always get a million questions whenever I raise this subject with volatility-deprived investors.

It gets better. Futures contracts began trading on the (VIX) in 2004, and options on the futures since 2006. Since then, these instruments have provided a vital means through which hedge funds control risk in their portfolios, thus providing the ?hedge? in hedge fund.

But wait, there?s more. Now, erase the blackboard and start all over. Why should you care? If you sell short the (VIX) here at $24, you are picking up a derivative at a nice overbought level. Only prolonged, ?buy and hold? bull markets see volatility stay under $14 for any appreciable amount of time. That?s probably what we have now.

If you are a trader you can sell short the (VIX) futures somewhere over $20 and expect an easy profit sometime in the coming weeks. If we get another 5% rally somewhere along that way, that would do it.

If you don?t want to sell the (VIX) futures or options outright, then you can always sell short the iPath S&P 500 VIX Short Term Futures ETN (VXX). Better yet, you can buy a short (VIX) ETN outright, the Velocity Shares Daily Inverse VIX Short Term ETN (XIV).

If you make money on this trade, it will offset losses on other long positions.

No one who buys fire insurance ever complains when their house doesn?t burn down.

VIX 1-11-15

VXX 1-11-16

1-11-16

Tiger hugs ManVolatility Can Be Your Friend

https://www.madhedgefundtrader.com/wp-content/uploads/2014/12/Tiger-hugs-Man-e1452549843482.jpg 400 262 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2016-01-12 01:06:382016-01-12 01:06:38Volatility Here is Peaking
Mad Hedge Fund Trader

The Volatility Peak is In

Diary, Newsletter

Well, I certainly earned my crust of bread today.

This was truly one of those mornings when you couldn?t believe your screens.

When I went to sell short the Volatility Index (VIX), I discovered that it wasn?t trading. Volatility in fact didn?t trade at all for the first 15 minutes of Monday.

Unbelievable!

So I rushed to buy the short volatility ETF?s the Velocity Shares Daily Inverse VIX Short Term ETN (XIV) and the ProShares Short VIX Short Term Futures ETN (SVXY). But they had already started running. It was basically a chase all day.

Despite the enormous volume, it was actually quite hard to trade on Monday. Apple (AAPL) at $92?

I am one of those cheapskates who buys Christmas ornaments by the bucket load from Costco in January for ten cents on the dollar, because my eleven month theoretical return on capital comes close to 1,000%.

I also like buying flood insurance in the middle of the summer when the forecast here in California is for endless days of sunshine.

That is what we are facing now with the volatility index (VIX) where premiums finally did trade at opened at the $53 handle, a six-year high. The iPath S&P 500 VIX (VXX) Short Term Futures ETN actually doubled in three days!

Yikes!

Get this one right, and the profits you can realize are spectacular.

It gets better. If the top in volatility exactly coincides with the bottom in the ten year Treasury bond yields today at 1.92%, volatility could be headed back down to the 12% level where it will remain mired for months.

I double dare you to look at the charts below and tell me this isn?t happening.

Watch carefully for other confirming trends to affirm this trade is unfolding. Those would include a strong dollar, stocks, and oil, and a weak Japanese yen, Euro, and fixed income instruments of any kind.

The CBOE Volatility Index (VIX) is a measure of the implied volatility of the S&P 500 stock index, which has been rallying hard since oil began its precipitous slide three weeks ago.

You may know of this from the many clueless talking heads, beginners, and newbies who call this the ?Fear Index?. Long-term followers of my Trade Alert Service profited handsomely after I urged them to sell short this index three years ago with the heady altitude of 47% several years ago.

For those of you who have a PhD in higher mathematics from MIT, the (VIX) is simply a weighted blend of prices for a range of options on the S&P 500 index. The formula uses a kernel-smoothed estimator that takes as inputs the current market prices for all out-of-the-money calls and puts for the front month and second month expirations.

The (VIX) is the square root of the par variance swap rate for a 30 day term initiated today. To get into the pricing of the individual options, please go look up your handy dandy and ever useful Black-Scholes equation. You will recall that this is the equation that derives from the Brownian motion of heat transference in metals. Got all that?

For the rest of you who do not possess a PhD in higher mathematics from MIT, and maybe scored a 450 on your math SAT test, or who don?t know what an SAT test is, this is what you need to know. When the market goes up, the (VIX) goes down. When the market goes down, the (VIX) goes up. End of story. Class dismissed.

The (VIX) is expressed in terms of the annualized movement in the S&P 500, which today is at 1,800. So a (VIX) of $14 means that the market expects the index to move 4.0%, or 72 S&P 500 points, over the next 30 days.

You get this by calculating $14/3.46 = 4.0%, where the square root of 12 months is 3.46. The volatility index doesn?t really care which way the stock index moves. If the S&P 500 moves more than the projected 4.0%, you make a profit on your long (VIX) positions.

Probability statistics suggest that there is a 68% chance (one standard deviation) that the next monthly market move will stay within the 4.0% range. I am going into this detail because I always get a million questions whenever I raise this subject with volatility-deprived investors.

It gets better. Futures contracts began trading on the (VIX) in 2004, and options on the futures since 2006. Since then, these instruments have provided a vital means through which hedge funds control risk in their portfolios, thus providing the ?hedge? in hedge fund.

But wait, there?s more. Now, erase the blackboard and start all over. Why should you care? If you sell short the (VIX) here at $24, you are picking up a derivative at a nice overbought level. Only prolonged, ?buy and hold? bull markets see volatility stay under $14 for any appreciable amount of time. That?s probably what we have now.

If you are a trader you can sell short the (VIX) futures somewhere over $20 and expect an easy profit sometime in the coming weeks. If we get another 5% rally somewhere along that way, that would do it.

If you don?t want to sell the (VIX) futures or options outright, then you can always sell short the iPath S&P 500 VIX Short Term Futures ETN (VXX). Better yet, you can buy a short (VIX) ETN outright, the Velocity Shares Daily Inverse VIX Short Term ETN (XIV).

If you make money on this trade, it will offset losses on other long positions.

No one who buys fire insurance ever complains when their house doesn?t burn down.

VXX 8-24-15

VXX 8-24-15

XIV 8-24-15

PHO 8-24-15 SVXY 8-24-15

VXX 12-17-14

TLT 12-17-14

XIV 12-17-14

tiger-swimming-2Make Volatility Your Friend, Not Your Enemy

 

https://www.madhedgefundtrader.com/wp-content/uploads/2012/03/tiger-swimming-2-e1440506453468.jpg 258 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-08-25 01:07:172015-08-25 01:07:17The Volatility Peak is In
Mad Hedge Fund Trader

2014 Trade Alert Review

Diary, Free Research, Newsletter

When is the Mad Hedge Fund Trader a genius, and when is he a complete moron?

That is the question readers have to ask themselves whenever their smart phones ping, and a new Trade Alert appears on their screens.

I have to confess that I wonder myself sometimes.

So I thought I would run my 2014 numbers to find out when I was a hero, and when I was a goat.

The good news is that I was a hero most of the time, and a goat only occasionally. Here is the cumulative profit and loss for the 75 Trade Alerts that I closed during calendar 2014, listed by asset class.

Profit by Asset Class

Foreign Exchange 15.12%
Equities 12.52%
Fixed Income 7.28%
Energy 1.4%
Volatility -1.68%

Total 37.64%

Foreign exchange trading was my big winner for 2014, accounting for nearly half of my profits. My most successful trade of the year was in my short position in the Euro (FXE), (EUO).

I piled on a double position at the end of July, just as it became apparent that the beleaguered European currency was about to break out of a multi month sideway move into a pronounced new downtrend.

I then kept rolling the strikes down every month. Those who bought the short Euro 2X ETF (EUO) made even more.

The fundamentals for the Euro were bad and steadily worsening. It helped that I was there for two months during the summer and could clearly see how grotesquely overvalued the currency was. $20 for a cappuccino? Mama mia!

Nothing beats on the ground, first hand research.

Stocks generated another third of my profits last year and also accounted for my largest number of Trade Alerts.

I correctly identified technology and biotech as the lead sectors for the year, weaving in and out of Apple (AAPL) and Gilead Sciences (GILD) on many occasions. I also nailed the recovery of the US auto industry (GM), (F).

I safely stayed away from the energy sector until the very end of the year, when oil hit the $50 handle. I also prudently avoided commodities like the plague.

Unfortunately, I was wrong on the bond market for the entire year. That didn?t stop me from making money on the short side on price spikes, with fixed income chipping a healthy 7.28% into the kitty.

It was only at the end of the year, when the prices accelerated their northward trend that they started to cost me money. My saving grace was that I kept positions small throughout, doubling up on a single occasion and then coming right back out.

My one trade in the energy sector for the year was on the short side, in natural gas (UNG), selling the simple molecule at the $5.50 level. With gas now plumbing the depths at $2.90, I should have followed up with more Trade Alerts. But hey, a 1.4% gain is better than a poke in the eye with a sharp stick.

In which asset class was I wrong every single time? Both of the volatility (VIX) trades I did in 2014 lost money, for a total of -1.68%. I got caught in one of many downdrafts that saw volatility hugging the floor for most of the year, giving it to me in the shorts with the (VXX).

All in all, it was a pretty good year.

What was my best trade of 2014? I made 2.75% with a short position in the S&P 500 in July, during one of the market?s periodic 5% corrections.

And my worst trade of 2014? I got hit with a 6.63% speeding ticket with a long position in the same index. But I lived to fight another day.

After a rocky start, 2015 promises to be another great year. That is, provided you ignore my advice on volatility.

FXE 12-31-14

SPY 12-31-14

TLT 12-31-14

WTIC 12-31-14

VIX 12-31-14

Here is a complete list of every trade I closed last year, sorted by asset class, from best to worse.

Date

Position

Asset Class

Long/short

?

?

?

?

?

?

7/25/14

(SPY) 8/$202.50 - $202.50 put spread

equities

long

?

?

?

?

?

2.75%

10/16/14

(GILD) 11/$80-$85 call spread

equities

long

?

?

?

?

?

2.57%

5/19/14

(TLT) 7/$116-$119 put spread

fixed income

long

?

?

?

?

?

2.48%

4/4/14

(IWM) 8/$113 puts

equities

long

?

?

?

?

?

2.38%

7/10/14

(AAPL) 8/$85-$90 call spread

equities

long

?

?

?

?

?

2.30%

2/3/14

(TLT) 6/$106 puts

equities

long

?

?

?

?

?

2.27%

9/19/14

(IWM) 11/$117-$120 put spread

equities

long

?

?

?

?

?

2.26%

10/7/14

(FXE) 11/$127-$129 put spread

foreign exchange

long

?

?

?

?

?

2.22%

9/26/14

(IWM) 11/$116-$119 put spread

equities

long

?

?

?

?

?

2.21%

4/17/14

(TLT) 5/$114-$117 put spread

fixed income

long

?

?

?

?

?

2.10%

8/7/14

(FXE) 9/$133-$135 put spread

foreign exchange

long

?

?

?

?

?

2.07%

10/2/14

(BAC) 11/$15-$16 call spread

equities

long

?

?

?

?

?

2.04%

4/9/14

(SPY) 5/$191-$194 put spread

equities

long

?

?

?

?

?

2.02%

10/15/14

(DAL) 11/$25-$27 call spread

equities

long

?

?

?

?

?

1.89%

9/25/14

(FXE) 11/$128-$130 put spread

foreign exchange

long

?

?

?

?

?

1.86%

6/6/14

(JPM) 7/$52.50-$55.00 call spread

equities

long

?

?

?

?

?

1.81%

4/4/14

(SPY) 5/$193-$196 put spread

equities

long

?

?

?

?

?

1.81%

3/14/14

(TLT) 4/$111-$114 put spread

fixed income

long

?

?

?

?

?

1.68%

10/17/14

(AAPL) 11/$87.50-$92.50 call spread

equities

long

?

?

?

?

?

1.56%

10/15/14

(SPY) 11/$168-$173 call spread

equities

long

?

?

?

?

?

1.51%

7/3/14

(FXE) 8/$138 put spread

foreign exchange

long

?

?

?

?

?

1.51%

10/9/14

(FXE) 11/$128-$130 put spread

foreign exchange

long

?

?

?

?

?

1.48%

9/19/14

(FXE) 10/$128-$130 put spread

foreign exchange

long

?

?

?

?

?

1.45%

10/22/14

(SPY) 11/$179-$183 call spread

equities

long

?

?

?

?

?

1.44%

5/29/14

(TLT) 7/$118-$121 put spread

fixed income

long

?

?

?

?

?

1.44%

2/24/14

(UNG) 7/$26 puts

energy

long

?

?

?

?

?

1.40%

2/24/14

(BAC) 3/$15-$16 call spread

equities

long

?

?

?

?

?

1.39%

6/23/14

(SPY) 7/$202 put spread

equities

long

?

?

?

?

?

1.37%

9/29/14

(SPY) 10/$202-$205 Put spread

equities

long

?

?

?

?

?

1.29%

5/20/14

(AAPL) 7/$540 $570 call spread

equities

long

?

?

?

?

?

1.22%

9/26/14

(SPY) 10/$202-$205 Put spread

equities

long

?

?

?

?

?

1.22%

5/22/14

(GOOGL) 7/$480-$520 call spread

equities

long

?

?

?

?

?

1.16%

5/19/14

(FXY) 7/$98-$101 put spread

foreign exchange

long

?

?

?

?

?

1.14%

1/15/14

(T) 2/$35-$37 put spread

equities

long

?

?

?

?

?

1.08%

3/3/14

(TLT) 3/$111-$114 put spread

fixed income

long

?

?

?

?

?

1.07%

1/28/14

(AAPL) 2/$460-$490 call spread

equities

long

?

?

?

?

?

1.06%

4/24/14

(SPY) 5/$192-$195 put spread

equities

long

?

?

?

?

?

1.05%

6/6/14

(CAT) 7/$97.50-$100 call spread

equities

long

?

?

?

?

?

1.04%

7/23/14

(FXE) 8/$134-$136 put spread

foreign exchange

long

?

?

?

?

?

0.99%

8/18/14

(FXE) 9/$133-$135 put spread

foreign exchange

long

?

?

?

?

?

0.94%

11/4/14

(BAC) 12/$15-$16 call spread

equities

long

?

?

?

?

?

0.88%

4/9/14

(SPY) 6/$193-$196 put spread

equities

long

?

?

?

?

?

0.88%

7/25/14

(SPY) 8/$202.50 -205 put spread

equities

long

?

?

?

?

?

0.88%

6/6/14

(MSFT) 7/$38-$40 call spread

equities

long

?

?

?

?

?

0.87%

10/23/14

(FXY) 11/$92-$95 puts spread

foreign exchange

long

?

?

?

?

?

0.86%

7/23/14

(TLT) 8/$117-$120 put spread

fixed income

long

?

?

?

?

?

0.81%

3/5/14

(DAL) 4/$30-$32 Call spread

equities

long

?

?

?

?

?

0.76%

4/10/14

(VXX) long volatility ETN

equities

long

?

?

?

?

?

0.76%

1/30/14

(UNG) 7/$23 puts

equities

long

?

?

?

?

?

0.66%

4/1/14

(FXY) 5/$96-$99 put spread

foreign currency

long

?

?

?

?

?

0.60%

1/15/14

(TLT) 2/$108-$111 put spread

equities

long

?

?

?

?

?

0.47%

3/6/14

(EBAY) 4/$52.50- $55 call spread

equities

long

?

?

?

?

?

0.24%

10/14/14

(TBT) short Treasury Bond ETF

fixed income

long

?

?

?

?

?

0.22%

3/28/14

(VXX) long volatility ETN

equities

long

?

?

?

?

?

0.20%

7/17/14

(TBT) short Treasury Bond ETF

fixed income

long

?

?

?

?

?

0.08%

3/26/14

(VXX) long volatility ETN

equities

long

?

?

?

?

?

0.06%

7/8/14

(TLT) 8/$115-$118 put spread

fixed income

long

?

?

?

?

?

-0.18%

4/28/14

(SPY) 5/$189-$192 put spread

equities

long

?

?

?

?

?

-0.45%

3/5/14

(GE) 4/$24-$25 call spread

equities

long

?

?

?

?

?

-0.73%

4/28/14

(VXX) long volatility ETN

volatility

long

?

?

?

?

?

-0.81%

4/24/14

(TLT) 5/$113-$116 put spread

fixed income

long

?

?

?

?

?

-0.87%

4/28/14

(VXX) long volatility ETN

volatility

long

?

?

?

?

?

-0.87%

6/6/14

(IBM) 7/$180-$185 call spread

equities

long

?

?

?

?

?

-1.27%

9/30/14

(SPY) 11/$185-$190 call spread

equities

long

?

?

?

?

?

-1.51%

10/9/14

(TLT) 11/$122-$125 put spread

fixed income

long

?

?

?

?

?

-1.55%

9/24/14

(TSLA) 11/$200 call spread

equities

long

?

?

?

?

?

-1.62%

2/27/14

(SPY) 3/$189-$192 put spread

equities

long

?

?

?

?

?

-1.67%

3/6/14

(BAC) 4/$16 calls

equities

long

?

?

?

?

?

-2.01%

10/14/14

(SPY) 10/$180-$184 call spread

equities

short

?

?

?

?

?

-2.13%

11/14/14

(BABA) 12/$100-$105 call spread

equities

short

?

?

?

?

?

-2.38%

10/20/14

(SPY) 11/$197-$202 call spread

equities

short

?

?

?

?

?

-2.72%

7/3/14

(GM) 8/$33-$35 call spread

equities

long

?

?

?

?

?

-2.91%

3/7/14

(GM) 4/$34-$36 call spread

equities

long

?

?

?

?

?

-2.96%

11/25/14

(SCTY) 12/47.50-$52.50 call spread

equities

long

?

?

?

?

?

-3.63%

10/20/14

(SPY) 11/$197-$202 call spread

equities

short

?

?

?

?

?

-4.22%

4/14/14

(SPY) 5/$188-$191 put spread

equities

long

?

?

?

?

?

-6.63%

 

John Thomas - BeachWhat a Year!

https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/John-Thomas-Beach-e1416856744606.png 400 276 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-01-15 09:01:572015-01-15 09:01:572014 Trade Alert Review
Mad Hedge Fund Trader

Mad Day Trader Jim Parker?s Q1, 2015 Views

Diary, Newsletter, Research

Mad Day Trader Jim Parker is expecting the first quarter of 2015 to offer plenty of volatility and loads of great trading opportunities. He thinks the scariest moves may already be behind us.

After a ferocious week of decidedly ?RISK OFF? markets, the sweet spots going forward will be of the ?RISK ON? variety. Sector leadership could change daily, with a brutal rotation, depending on whether the price of oil is up, down, or sideways.

The market is paying the price of having pulled forward too much performance from 2015 back into the final month of 2014, when we all watched the December melt up slack jawed.

Jim is a 40-year veteran of the financial markets and has long made a living as an independent trader in the pits at the Chicago Mercantile Exchange. He worked his way up from a junior floor runner to advisor to some of the world?s largest hedge funds. We are lucky to have him on our team and gain access to his experience, knowledge and expertise.

Jim uses a dozen proprietary short-term technical and momentum indicators to generate buy and sell signals. Below are his specific views for the new quarter according to each asset class.

Stocks

The S&P 500 (SPY) and NASDAQ have met all of Jim?s short-term downside targets, and a sustainable move up from here is in the cards. But if NASDAQ breaks 4,100 to the downside, all bets are off.

His favorite sector is health care (XLV), which seems immune to all troubles, and may have already seen its low for the year. Jim is also enamored with technology stocks (XLK).

The coming year will be a great one for single stock pickers. Priceline (PCLN) is a great short, dragged down by the weak Euro, where they get much of their business. Ford Motors (F) probably bottomed yesterday, and is a good offsetting long.

Bonds

Jim is not inclined to stand in front of a moving train, so he likes the Treasury bond market (TLT), (TBT). He thinks the 30-year yield could reach an eye popping 2.25%. A break there is worth another 10 basis points. Bonds are getting a strong push from a flight to safety, huge US capital inflows, and an endlessly strong dollar.

Foreign Currencies

A short position in the Euro (FXE), (EUO) is the no brainer here. The problem is one of good new entry points. Real traders always have trouble selling into a free fall. But you might see profit taking as we approach $1.16 in the cash market.

The Aussie (FXA) is being dragged down by the commodity collapse and an indifferent government. The British pound (FXB) is has yet to recover from the erosion of confidence ignited by the Scotland independence vote and has further mud splattered upon it by the weak Euro.


Precious Metals

GOLD (GLD) could be in a good range pivoting off of the recent $1,140 bottom. The gold miners (GDX) present the best opportunity at catching some volatility. The barbarous relic is pulling up the price of silver (SLV) as well. Buy the hard breaks, and then take quick profits. In a deflationary world, there is no long-term trade here. It is a real field of broken dreams.

Energy

Jim is not willing to catch a falling knife in the oil space (USO). He has too few fingers as it is. It has become too difficult to trade, as the algorithms are now in charge, and a lot of gap moves take place in the overnight markets. Don?t bother with fundamentals as they are irrelevant. No one really knows where the bottom in oil is.

Agriculturals

Jim is friendly to the ags (CORN), (SOYB), (DBA), but only on sudden pullbacks. However, there are no new immediate signals here. So he is just going to wait. The next directional guidance will come with the big USDA report at the end of January. The ags are further clouded by a murky international picture, with the collapse of the Russian ruble allowing the rogue nation to undercut prices on the international market.

Volatility

Volatility (VIX), (VXX) is probably going to peak out her soon in the $23-$25 range. The next week or so will tell for sure. A lot hangs on Friday?s December nonfarm payroll report. Every trader out there remembers that the last three visits to this level were all great shorts. However, the next bottom will be higher, probably around the $16 handle.

If you are not already getting Jim?s dynamite Mad Day Trader service, please get yourself the unfair advantage you deserve. Just email Nancy in customer support at support@madhedgefundtrader.com and ask for the $1,500 a year upgrade to your existing Global Trading Dispatch service.

 

Volatility WeeklyVolatility Weekly

 

Volatility Monthly (2)Volatility Monthly

 

Euro to the DollarEuro to the Dollar

 

PCLN 1-7-15

F 1-7-15

Jim Parker

https://www.madhedgefundtrader.com/wp-content/uploads/2015/01/Volatility-Weekly.jpg 325 579 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2015-01-08 09:44:082015-01-08 09:44:08Mad Day Trader Jim Parker?s Q1, 2015 Views
Mad Hedge Fund Trader

The Best Stop Loss of the Year

Diary, Newsletter

Traders throughout the industry have been left with their jaws hanging open in the wake of the complete collapse of volatility for the S&P 500 (SPY). When the volatility hit the $10 handle a few days ago, it was the lowest level in nearly a decade.

Especially hard hit has been the iPath S&P 500 VIX Short Term Futures ETN (VXX), which has cratered from $56 to $30, some 46%, just since February. I had a bet on last month that this note would hold its multiyear lows around $40.

Think again.

When it broke my 5% rule for non-leveraged instruments, I pulled the ripcord and stopped out at $37.80, paring 1.68% off of my 2014 performance. The (VXX) then went into free fall, breaking $30.

If I was stubborn, insisted that I was right and the market wrong, and shouted at the sea not to rise, like King Canute, this position would have cost me a heart breaking 8.66%. To quote the legendary economist and early hedge fund trader, John Maynard Keynes, ?Markets can remain irrational longer than you can stay solvent.?

What has been killing the (VXX) has been the contango in the futures market. The managers buy three-month (VIX) futures at higher implied volatilities, and ride them into expiration, when much lower implied volatilities prevail. For example, today, you can buy September volatility for $16, while June is only $11.

The (VXX) managers then roll their cash into the next batch of three-month futures and repeat the process. It is, in effect, a perfect money destruction machine. This is why the (VXX) has plummeted from an all time high of $8,000 to $30 in just five years. S&P 500 volatility has declined from $90 to $11 during the same time.

Why did I recommend purchase of such a suicidal instrument? Because during periods of market weakness, like you normally get in May, you can see dramatic pops in the price of the (VXX) as long only institutions rush to buy downside protection, sometimes on the order of 25%-50%.

Except, this time it was different. It really has been one of those abnormal, mean diverging kind of years, from day one.

It is all a lesson on the value of stop losses. I tell people I practice this discipline because I am too old to go back to Morgan Stanley broke, and start all over again. They probably wouldn?t have me anyway, I am so prone to farting in church.

You may have other reasons.

VXX6-9-14

VIX 6-9-14

Skateboard FallSo it Wasn?t Such a Great Time to Trade Volatility

https://www.madhedgefundtrader.com/wp-content/uploads/2014/06/Skateboard-Fall.jpg 324 393 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-06-11 01:04:532014-06-11 01:04:53The Best Stop Loss of the Year
Mad Hedge Fund Trader

It?s ?RISK ON? Again

Newsletter

?Well, I?ll either be up 25% by the end of June or I just blew up my 2014 performance.?

That is what I told my esteemed colleague, Mad Day Trader Jim Parker, right after I engineered a major ?RISK ON? adjustment for my model trading portfolio.

If I am right, and bonds peaked and yields bottomed for the year, then my followers will make a fortune. Money will pour out of bonds into shares and other risk assets, taking the indexes up substantially through December.

If I am dead wrong, then the market?s judgment could be harsh.

Welcome to show business.

Starting two weeks ago, a whole range of short-term risk indicators started flashing green lights.

Most importantly, the bond market (TLT), (TBT) topped out, taking with it the entire fixed income space into the toilet, including corporates (LQD), munis (MUB), junk (JNK), and emerging market debt (ELD). Only high yield master limited partnerships (LINE) and REIT?s were spared the decimation.

Then we saw the prices for credit default swaps utterly collapse or the cost of insurance for individual debt instruments. Why buy insurance if you are going to live forever?

Volatility hit decade lows at the $10 handle. Hundreds of large cap and technology stocks broke out to the upside on the charts, taking off like a scalded chimp.

Out went my Trade Alerts to buy (JPM), (IBM), (CAT), and (MSFT). Mad Day Trader Jim Parker successfully sold the euro short (FXE) and bought the grains against it (JJG).

Distress short covering of equities by hedge funds also showed it?s ugly hand. That is, ugly if you?re a hedge fund. Visions of resumes posted on Craig?s List danced in their minds or maybe a future as an Uber taxi driver. All we needed was a few prints of new all time highs by the major indexes, and it was off to the races.

Of course, the spark for the melt up was the healthy May nonfarm payroll report showing a gain of 217,000. The headline unemployment rate maintained a seven year low of 6.3%. When the (SPY) gapped up, it was all over but the crying.

Clearly, the pain trade is to the upside. Many hedge funds are still running net shorts, albeit of substantially reduced size. Active portfolio managers are underweight stocks. Even Apple (AAPL) is under owned as it approaches a new all time high. Hey Apple, post split under $100? Sounds like a bargain to me!

To see all of this happening in June, when stocks are entering a seasonally slow, weak period, is nothing less than amazing. To witness a flat line ?time? correction take place instead of a long overdue ?price? correction over the last three months, right at an all time high, is also a shocker.

This time it really is different.

That means the move in the S&P 500 up 10% by yearend is now a chip shot. It makes my own target of 15% to 2,200, derided by many as ?Mad? when I made it at the New Year, as far more realistic. It?s the story of my life.

Add in 3% of dividend income, and the large cap index could bring in a total return of 18% in 2014. That?s less than the 30% gain we saw in 2013. But it?s better than a poke in the eye with a sharp stick.

If you want to hear me expound on my current views at length, please listen to my interview on PreMarketPrep at Benzinga TV, by clicking: https://www.youtube.com/watch?v=-PQMtT_a7EE .

Could my ?Golden Age? scenario be unfolding early?

SPY 6-9-14

TLT 6-9-14

VXX 6-9-14

Leonard DiCaprioIt?s Happening Sooner Than You Think

https://www.madhedgefundtrader.com/wp-content/uploads/2013/05/Leonard-DiCaprio-e1415560921439.jpg 271 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-06-10 01:04:252014-06-10 01:04:25It?s ?RISK ON? Again
Mad Hedge Fund Trader

Why I?m Selling Short Treasury Bonds

Newsletter

This has really been one of those incredible, jaw dropping, knock your socks off kind of years. It seems like every asset class is doing exactly the opposite of what it should do.

A slowing economy delivered a huge move up in bonds, which is fine. The extent of the damage the harsh winter wrought on the economy was confirmed this morning, with a full one-point drop in Q1 GDP. But does this mean that stocks should go to all time highs as well?

Look at the volatility index, (VIX) (VXX), which is also sitting at multiyear lows. You would expect it to rise as we go into a traditional ?RISK OFF? season. It does truly seem that this time it?s different.

That is, until they are not different anymore. I believe that after five months of markets that are unpredictable, extraordinary, and difficult to trade, they are about to become predictable, ordinary, and easier to trade.

What does that mean for you and me? Buy stocks and sell bonds. We are about to shift from a reach for yield world to one where investors are reaching for capital gains. There isn?t much yield to reach for anyway.

We?ve just had a four point run in the latest leg up in the incredible bull market in bonds. So I am strapping on here the iShares Barclay 20+ Year Treasury Bond Fund (TLT) July, 2014 $118-$121 in-the-money bear put spread (see yesterday?s Trade Alert).

We could be in for some month end profit taking. The upper $118 strike works out to a ten year Treasury bond yield of 2.27%. The breakeven point in yield terms goes all the way down to 2.24%.

As long as yields stay above that by the July 18 expiration, we will keep the entire profit on this trade, a gain of some 1.76% for your total portfolio. Better yet, get a three point dip anywhere along the way, and we will immediately reap 75% of the potential profit, as we did with our last (TLT) bear put spread.

Sounds like a no brainer to me.

I think this week flushed out a lot of the hotter short-term money from the market in the humongous short squeeze that I warned you was coming. Positioning is now flatter. It is now time to digest.

Mad Day Trader Jim Parker also thinks we could be in for a major trend reversal with next week?s Friday nonfarm payroll report. Bonds rallied on the last six consecutive reports. This time they may disappoint, as bond prices are at such nosebleed levels. We could be setting up for a big ?buy the rumor, sell the news? move here in bonds.

In the meantime, the (TLT) could rise as much as a point higher to $116. That still gives me plenty of breathing room with this new position, which has a breakeven point at $118.45. That sounds like a pretty good bet, now that we are headed into the slower summer months.

For us to lose money on this trade, the world would have to end first, at which point we won?t care about our trading books.

For those who don?t have options coursing through their veins, please buy the ProShares UltraShort 20+ Year Treasury ETF (TBT), a 2X short Treasury bond fund.

As for stocks, it is looking like we are just completing a five month long ?time? correction. The ?price? correction never extended beyond 6%. We are about to enter nine months of increasingly positive economic data, as most of the growth lost in Q1 gets rolled forward to Q2, Q3, and Q4. That should take the S&P 500 (SPX) up to 2,100 by year-end.

In the meantime, the Mad Hedge Fund Trader?s Trade Alert service is now up 15.3% on the year, and is inches from a new all time high. Watch this space.

TLT 5-29-14

TBT 5-29-14

SPX 5-29-14

VXX 5-29-14

ShockedIt?s Really Been One of Those Kinds of Years

https://www.madhedgefundtrader.com/wp-content/uploads/2014/05/Shocked.jpg 353 320 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-05-30 01:03:202014-05-30 01:03:20Why I?m Selling Short Treasury Bonds
Mad Hedge Fund Trader

The Endless Summer of 2014

Newsletter

We have just endured three weary months of tedious range trading, typical of a normal summer?s action. The problem is that the actual summer is about to begin. Are we going to suffer another three months of tedious range trading? Is summer trading this year going to last a full six months?

Is this the endless summer of 2014?

That is the alarming conclusion of the many hardened and seasoned traders I know. I have been saying all year that 2014 might be a fourth quarter year. It?s looking like my worst nightmare is coming true. Can you blame my friends for throwing in the towel?

The fact that almost all traditional trading tools have recently been utterly worthless hasn?t helped.

Take technical analysis. In a flat market, commentators urge you to buy every false upside breakout, and then sell every false breakdown, only to see it snap back in the opposite direction the next day. You don?t have to suffer too many round trips following this strategy before you run out of money.

Economic data isn?t useful either. It has been unrelentingly positive, as have corporate earnings, with a few notable exceptions (Amazon (AMZN), Fire Eye (FEYE)). Yet, the market can?t carry out a sustained rally, frustrating bulls to no end. It seems that one day, the market is discounting an heroic? 3% GDP growth rate this year, the next day only a disappointing 2%.

Talk about a bipolar market.

The (SPX) better get a move on. The dismal Q1 report showed that the economy actually shrunk by -0.2%-0.8%. That only allows for three more quarters to stage a comeback, requiring absolutely torrid growth rates. Maybe this is why stocks can?t go down either.

Everyone knows the market will be up on the year, and they don?t want to sell positions for fear they won?t be able to get back in when the long awaited breakout finally happens. That would bring a second year of relative underperformance in a row for most portfolio managers, not exactly a career boosting move.

So while the market is tearing the petals off my own 2014 performance with a ?love me, love me not? torture routine, I think I?ll stay on the sidelines. That?s why I bailed on my last remaining position, a small long in the iPath S&P 500 VIX Short Term Futures ETN (VXX), taking yet another shaving cut on my numbers.

The only way to survive in this industry for the long term is to stay out when you don?t understand what is happening. There are times when there is just no money to be made in the market. This is one of those times.

Screaming at it, throwing your handset through your monitor, or tossing your PC out the window, all things I have seen frustrated traders do, isn?t going to improve the situation.

Go watch a season of Game of Thrones instead.

AMZN 5-12-14

FEYE 5-12-14

VXX 5-12-14

Game of ThronesBetter Than Watching the Market

https://www.madhedgefundtrader.com/wp-content/uploads/2014/05/Game-of-Thrones.jpg 373 283 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-05-13 09:34:182014-05-13 09:34:18The Endless Summer of 2014
Mad Hedge Fund Trader

Cashing in on My Shorts

Newsletter

Take the easy money and run. No one every got fired for taking a profit. That?s the mood I was in when I came in and saw my long volatility ETF (VXX) spiking and my short in the S&P 500 (SPY) cratering. I sent out Trade Alerts immediately that took my model-trading portfolio into a rare 100% cash position.

The Volatility Index (VIX) is up a breakneck 35% in a week, while the ETF (VXX) has tacked on 11%. You don?t get such heart palpitating moves like this very often, especially when they are all going in your favor.

It helped that Mad Day Trader Jim Parker, rushed the chart below to me right after the opening showing that the NASDAQ 100, the chief whipping boy in this selloff, is becoming severely oversold and fast approaching a major area of support (the lime green line). Bonds (TLT) are stalling at $110.60, and the ?RISK OFF? move in the Japanese yen (FXY) is approaching the upper limit of its 2014 range.

This all adds up to the possibility that another one of those ?rip your face off? short covering rallies could be near.

The rule in this type of market is to take the quick profits. You especially want to date, and not marry, the (VXX), since the contango over time can cost you your shirt.

Trading on the short side is a totally different animal than traditional long side plays. It is much harder work, as shorts behave totally differently than longs. The movie is on fast forward and you must act quickly.

To be up 15.45% so far in 2014, a down year when most investors are tearing their hair out, and up a meteoric 7.89% in April, is nothing less than heroic. Eight out of my last ten Trade Alerts have been profitable. The email plaudits have already started pouring in. Now all your friends at the country club can hate you, but only if you followed my advice.

Let me tell you what I did right this week, so you can take a page from the playbook of the master.

1) I kept the positions small, so I could sleep at night
2) I did the hard trade, selling when everyone else loved this market
3) I took trading profits quickly
4) I ignored the talking heads on TV so I wouldn?t puke out at the bottom
5) I didn?t take the Princess cruise from San Francisco to Los Angeles, where 50 passengers and 25 crew came down with norovirus. Imagine getting sick before your get to Mexico.

Is it possible that I am improving with age? That I?m becoming a better trader as I get older? That the payoff for a 45-year accumulation of market experience keeps increasing? What a concept!

I don?t think this correction is over. Vladimir Putin can drop a bombshell on the markets at any time. We are going into the traditional May-October ?RISK OFF? seasonal with markets still very near all time highs. The midterm elections in November are introducing a new level of uncertainty. The IPO bubble continues unabated (there are seven today!), and will only end in tears.

And who knows when another cruise ship is going to come down with norovirus?

But nothing moves in a straight line. It?s time to move to the sidelines so I can reload on the short side after the next short covering rally exhausts itself.

As for me, I am going to spend the rest of the day writing checks to the US Treasury to pay taxes for myself, the numerous entities I control, and a gaggle of impoverished relatives. All American tax returns are due on Tuesday.

Then I?m going down to Union Square in San Francisco and buy myself a new Brioni pin stripe suit, another pair of Bruno Magli alligator skin shoes, and have a kir royal at the top of the Mark Hopkins Hotel, thankful for my good fortune that I can pay all these bills.

VIX 4-11-14

VXX 4-11-14

SPY 4-11-14

USA 4-11-14

FXY 4-11-14

TLT 4-11-14

Burning Building

https://www.madhedgefundtrader.com/wp-content/uploads/2014/04/Burning-Building-e1430840521423.jpg 308 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-04-14 01:05:442014-04-14 01:05:44Cashing in on My Shorts
Mad Hedge Fund Trader

Will Candy Crush Crush the Market?

Newsletter

Feed the ducks while they are quacking. That is one of the oldest nostrums heard on Wall Street, and feed them they have, to the point of absolute gluttony.

This year we have seen the market for new initial public offerings for newly listed companies explode to life. There have been 46 so far in 2014, some 26 from the biotechnology area alone. Last Friday, there were an astounding seven in one day. When the demand is there, investment bankers are more than happy to run the printing presses overtime to meet it, creating new stock as fast as they can.

This morning saw the debut of King Digital Entertainment (KING), maker of the kid?s digital game ?Candy Crush?. Much to the chagrin of the bankers and the existing shareholders, the stock immediately traded down -10%. You know that when you see huge, dancing lollypops on the floor of the New York Stock Exchange, it is time to get out of the market, post haste.

It all seems frighteningly familiar, like d?j? vu all over again. The last time things were this hot was in April of 2000. Then, an onslaught of IPO?s put in the top for NASDAQ, igniting the great Dotcom crash. Share prices have yet to recover those heady levels a decade and a half later.

Looking at the quality and quantity of the new companies being floated, with minimal earnings, sky high multiples, and market capitalizations in the tens of billions of dollars, a similar outcome is assured. Wall Street never fails to kill the golden goose. There is no limit on greed.

As a result, the IPO market is threatening to take the main market down with it. The number of short-term indicators that I am seeing roll over and die is nothing less than astounding. At the very least, I think we are in for the kind of 5%-7% correction of the sort that we saw in January and February. I?ll give you two big ones.

The scary tell here is the strength of the bond market (TLT), which just broke out to a new seven-month high. Today?s Treasury five-year bond auction went like a house on fire. Stocks and bonds rarely go up in unison, and bonds usually end up being right.

Another is the elevating bottom in the volatility Index (VIX). During November and December, the (VIX) put in rock solid bottoms at the $12 level. After the January dump, the support rose to $14. This means that investors are now more nervous, willing to pay a premium for downside protection, and intend to unload shares at the first sign of trouble. As much fun as rising bottoms can be, you never want to see them in volatility if you own stocks.

The only question is whether they can hold the market up until Friday, March 28, the month end on Monday, March 31, or the new start to the quarter on Tuesday, April 1.

So how best to participate in the coming debacle? Cut back any leveraged long positions that you have. If you want to keep your stocks for tax or other reasons, then write front month call options against them, known as ?buy writes.?

Use the good days to lay on positions in long dated put options for the S&P 500 (SPY), the NASDAQ (QQQ), and the Russell 2000 (IWM). Long dating heads off the time decay problem, reducing the volatility of your position, and helps preserve capital.

Traders can also buy volatility through the iPath S&P 500 VIX Short Term Futures ETN (VXX), an exchange traded note, which rises when stocks fall.

The set up here for the iPath S&P 500 VIX Short Term Futures ETN (VXX) is a no brainer. If we get the modest weakness that we saw in early March, the (VXX) should rise 10% from current levels to the $48 handle. If we get a January replay, that is worth 20% for the (VXX), potentially boosting it to $55. If we finally get the long overdue 10% correction, the (VXX) should rocket by 30% or more.

If the selloff decides to wait a few more days or weeks you can afford to be patient. Since this is an ETN, and not an option play, a flat lining or rising market isn?t going to cost you much money. The February low in the (VXX) at $42.25 looks pretty safe to me in a rising volatility environment. A revisit would only cost us pennies.

Take your pick, but all paths seam to lead skyward for the (VXX), sooner or later.

VIX 3-26-14

VXX 3-26-14

SPY 3-26-14

QQQ 3-26-14

IWM 3-26-14

Girl on Pogo StickThe Time to Trade Volatility is Here

https://www.madhedgefundtrader.com/wp-content/uploads/2014/03/Girl-on-Pogo-Stick.jpg 380 330 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-03-27 09:21:512014-03-27 09:21:51Will Candy Crush Crush the Market?
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