Long-Short trade

[MrGecko]

copulate with the natives in far off distant lands . . .

Really? Where? Can I come?

Re: Charts at entry and Exit - sure, once I have exited each position I'll post the chart with the entry and exit marked (it is a pain doing it in real time, because I can't "export" the screen, I have to do a screen print, then open it in photoshop because paint seems to stretch it all the time, then crop out all my other screens, etc..). I am certain that using TA to pinpoint (and manage) the positions will improve the bottom line, but I can always add that in later on (mean actually do it, not alter the results). While I am getting started, I'm just going to stick 'em on.

As for NAT... yes, for the two to be equally weighted it should be 60 shares. A mistake on my part, I just rattled off the orders (if they are cheaper I will buy 10 more)...

I am trying to reduce my net Long exposure / build some other positions... I am thinking about buying some cash bonds, but I can't quite figure out the trade yet.

As for MCD and SBUX, I put the trade on with only a cursory glance at a graph - literally 2 seconds on each (I did do the correlations and volatilities, but then decided to ignore them and make the positions equally weighted).

 

[fibonelli]

Hi MrG,

As you know the futures exchanges give significant margin offsets for recognised intermarket and (especially) calendar spreads.

It would be good to see your experiences in setting up long/short in related futures contracts!

V. nice thread btw.

 

[MrGecko]

As you know the futures exchanges give significant margin offsets for recognised intermarket and (especially) calendar spreads.

I certainly intend to do something like this in the future, probably with intra-contracts spreads to start (i.e. speculate on the yield curve), and maybe with inter-contract too (e.g. US equities vs. EUR equities).

The margin offsets, on the other hand, I'm not so sure about (I mean, they exist for sure, but I'm not sure that I want to leverage myself too much, I'd like to try and manage a Cash portfolio).

I've added 10 more NAT @ 29.37

One important thing I want to mention re: entries... it is easy to list the price I am getting fills on, because I'm only messing about with 100 shares or so. If I had real wedge to throw about, there is no way I would be able to do this - which is partly why I am overlooking TA to pick a better entry. If I wanted to put a few $million on each position, I'd either get in over a number of hours / days or just send the order off to my broker to do it for me.

The idea is that the improvements I could get on price from looking at the PA is coupled against the premium I would pay as my $mm trades moved the market. Thats the general idea, anyway.

 

[MrGecko]

New position

Because of the long bias in the portfolio as a whole, I wanted to hedge out some of my delta exposure over the weekend - specifically the risk of the Bad bank option getting taken off the table.

So, I sold an SPY feb 09 77 Call for +6.85

which hedged out my SPY Beta weighted delta nicely. I am looking to buy the contract back next week, but the +ve theta and my bearish view on Vol mean I might let it collect a little premium first. 3 weeks until expiry.

Gross sum (i.e. not net of long + short) $ value of positions at entry = $50,851.66
Net PnL = +$46.76 (+0.092%).

AAPL is dragging the portfolio down today - inclusive of the IBM profits, it costs -0.19% of the portfolio.

 

[MrGecko]

New Position

I'm going to write the bumpf now to save me some time tomorrow... I'll post the prices when I've got the trade on.

Short General Motors, Long Ford

The idea for this trade came from an article in this weeks economist I read yesterday. While the outlook for the Motor industry is pretty dire, I think there might be an opportunity here. The reasons:

*Both comapnies have subsidiaries that they are trying to flog off - General Motors owns Saab, and Ford owns Volvo. Comparing the two (Saab and Volvo), it is clear to see which company is going to be easier to sell. Saab hasn't had a profitable year since... well, ages. Volvo, while struggling, has kept its head above water in the past. So the outlook is better for Ford (solvent) selling Volvo than GM (distressed) selling Saab...

*Look at the brands that each company has:

The following GM brands were being produced in July 2008:

* Buick * Cadillac * Chevrolet * Daewoo * GMC * Holden * Hummer * Opel * Pontiac * Saab * Saturn * Vauxhall

While ford has

Overall the Ford Motor Company controls the following operational car marques: Ford, Lincoln, Mercury, and Volvo Cars.

Now, several things to note here:

Firstly, all those brands that GM runds must eat up cash, and none of them stand out as first class opportunites (Vauxhall, for example, will lose out to the competition - Ford).

Secondly, GM makes cars that drink petrol and spew out greenhouse gases (Hummer, GMC etc). I reckon that Obama will pass some environmental legislation, in some form or another, that penalises C02 spewing cars (more accurately, their owners) in the form of tax. Even if he doesn't do this explicitly, my money is on him moving towards a "greener America", and the associated domino effect.

Ford, on the other hand, has got a nice little line in Hybrids (Fusion and Escape) and run-arounds (Fiesta, Ka) - along with family saloons (Focus, Mondeo). It also makes the best selling Pick up truck, its called a 150 or something. Recession or depression, those things will continue to sell.

*Of course, GM is closer to nationalisation than Ford is because GM has been bailed out, Ford has not. Ford also has one of the Best CEO's in the world, while it seems the GM management have c0cked it up pretty badly.

*European Sales: Fords are popular cars over here. Other european makers (specifically the germans) are at the higher end of the market - Audi, Mercedes, BMW, Porsche - as customers for these cars move down a bracket, the market for "middle of the road" cars increases. Ford is better placed to capitalise on this than GM (I've never seen half of GM's marques over here).

*Additionally, the Scandinavian G'ment has said it will offer support for carmakers as long as the cash is spent in Scandinavia - though neither Volvo or Saab actually make the cars there. So not of direct significance, but pertinent.

The two are closely correlated and equally volatile.

Fundamentally, Ford has marginally better figures than GM (EPS etc..).

Looks like the Pro's have been making money from this trade for a long time (look at a chart of F - GM)

Thats about it, a "brain dump" for the trade. Will update with prices on Monday.

 

[MrGecko]

New Position

One other I will put on tomorrow, and bring back by net Long/Short exposure

Short Whole Foods

These are an organic supermarket. Simple justification - as people start to tighten the purse strings, consumers will move away from expensive fancy food to the supermarket staples.

 

[ben2k9]

OK - been talking to arabian et al about this yesterday, thrown around lots of ideas (most of which are useless). Basically, I am putting on a paper Long-short equity trade, just for a laugh really.

I know very little about the equity markets, but anyway: my trade is going Long Apple Inc. (AAPL) and short International Business machines (IBM).

The justitification is really quite stupid:

*AAPL has just broken trendline resistance, and I think IBM will falter a bit.

* Historically, the spread hasn't been less than 0 for long.

* From what I can tell, AAPL has the slightly better fundamentals (wishing I had paid attention in those bloody lectures now)... basically it has higher PE ratio, higher EPS, a healthier balance sheet, and more people are short AAPL than IBM (looking for a short squeeze to kick things off) - it should trade higher than IBM.

* IBM is focused in the industrial market, AAPL the retail - I think the cost cutting going on all over the place will dent IBM's revenue's, while everyman and his dog will want an iPhone Nano (if they exist).

* Steve jobs will either get better, or the market will realise that the people running it are very well qualified (and the talent has stayed, the designers + marketing teams).

*AAPL has a higher Beta than IBM, and if this is a bottom (or temporary bottom) in the equity markets, I should end up net +ve beta.

* the limited stats I could be bothered to do indicate a strong +ve correlation

* the two are very closely priced, which makes it easy for me to do the sums.


well, thats about it.

I will record the prices I "enter" at by posting them here, then we just sit back and watch!

Hi there. Like your thread idea.

I would take the opposite side of your AAPL/IBM pair trade...here's why.

Fundamental:
AAPL deals in the consumer side of the market, as you mentioned. The consumers are not it great shape at the moment, and getting worse each month with unemployment rising, housing falling, and stocks falling.

IBM deals in the corporate market, and furthermore, at least half their revenue is annuity / perpetual for service. In bad market conditions, firms go to IBM to help them streamline their cost. IBM gains market share in market downturns.

Technical:
In an AAPL vs. IBM comparison chart, AAPL is in a relative-strength downtrend with respect to IBM.

Chart: Price chart of AAPL, lower pane is relative strength AAPL : IBM

 

[MrGecko]

Yeah - was reviewing the position a few minutes ago. Think I might cut it, or even reverse.

 

[arabianights]

You can't do that I said I'd take the other side!

Automotive one is a good un... The CEO of whole foods has a bit of a reputation for posting on trading forums so maybe we'll hear something about that soon! Maybe versus archer daniels midlands with commodities hedged out?

 

[MrGecko]

FWIW I'm also looking at shorting the QQQQ Mar09 29 straddle. Am I crazy?

 

[MrGecko]

Update + New position

Ford +2747 @ 1.83
GM -1700 @ 2.94

====================================

Long US Steel Short Arcelor Mittal

Looking to get in on the protectionism in the Stimulus Package coming out of Washington.

Moreover, German carmakers + manufacturing industry is really suffering.

Thats about it.

US Steel + 177 @ 28.26
Arcelor Mittal -113 @ 22.06

 

[MrGecko]

Update

Whole Foods -100 @ 9.99

 

[MrGecko]

NAV PnL +0.11%
YTD + 0.7622%

 

[MrGecko]

NAV PnL + 0.4889%
YTD +1.2510%

An interesting little exercise. Pretty Woman is on tonight, and it's one of my all time favourite films - watch it!

 

[MrGecko]

NAV +0.5427%
YTD +1.7937%

The long positions I have in OSG and NAT (shipping companies) are pulling the portfolio down... while I firmly believe in them long term, it may just be that I am too early for the market. Even when we were at our peaks today they were underperforming, and they do knock out the long/short bias of my portfolio.

YTD the two positions account for over 0.24% of losses... my view of the BDI hasn't changed - I still think that trade credit will improve and this will be reflected in shipping rates.... however the stats indicate that international imports/exports are falling away sharpish: there will come a point where my long/short on X vs. MT (a net TYD positive trade) becomes inconsistent with the demand for shipping - if things continue like this, I am going to have to cut one of the positions - they just dont add up. Will look to reduce / close the OSG and NAT positions and add to the F vs. GM trade (so far the best performer, + 0.9421% YTD) and reduce my SPY weighted Beta

Other issue trade is the MCD vs SBUX position: -0.2737% YTD (the only long/short trade thats a loser)... fundamentally I still think its a good pairing: MCD is a solid company (Can you even imagine an America without Big Macs?) and so I am happy with the long... will consider finding another stock to short against it, SBUX doesn't seem to be doing well as far as shorts are concerned.

Aside from that... Whole foods is going against me, but I am not yet prepared to cut it loose. Fancy carrots and v. posh sprouts are not revenue streams IMO... it is a small position and I will keep onto it...

note to self: Whole foods and Starbucks share the same target market - wifes (or au pairs) of the well-to-do. If both are going against you, you might have got it wrong.

Other than that, the commodity positions (long Gold and Crude) are very volatile, but still good macro trades. The SPX condor is slowly but surely adding value.

 

[MrGecko]

NAV +0.0949%
YTD +1.8886%

No changes to the portfolio for a few days now... again, my SBUX short is bringing some heat, I think this might be one to dump (WFMI, Whole Foods, is also going against me still).

My Gold ETF moved into the Black today, contributing +0.0345% to the book.

Best performers are

Visa +100 +1.0077%
US Steel +177 +0.8377%
Apple +100 0.4927%

Worst are

Arcelor Mittal -113 -0.7625%
Starbucks -600 -0.5643%
Overseas Group +50 -0.1650%

One thing I have noticed is that the PnL at close is usually less than the average PnL during the day - and it doesn't matter whether the market is going up or down, my PnL during the day is double or more the PnL at close.

Another thing I have noticed is that the direction of the market as a whole doesn't really affect my PnL much - I was up all day today, from -100 < dow < +100 . I guess this is to be expected, because I have built a largely market neutral book, with a very small bullish bias on some stocks (which are all losing). The SPY weighted Beta is about +200, which explains the +ve PnL in market upswings and downswings.

Its all very interesting... I have had some more ideas that I might introduce - like building a volatility model of one liquid ETF (say QQQQ or DIA) and trading delta neutral options from the model, or finding an index that I can compare my performance with and do my Sharpe ratio's, etc. Today playing around was a welcome distraction from my proper trading, where I have had an awful day because I was unprepared and hungover.

FUBAR.

Anyway, slow and steady wins the race. Does anybody else do anything similar to this?

 

[MrGecko]

One more thing... Everybody now is talking about the Baltic Dry Index. I have a trade on because of it, but I had the idea a few months ago... my entry prices are very recent. Both positions are net losers. If everyone is talking about it, there can't be any value in it... but markets under-react, and this is a good case for Buy and Hold.

???

 

[MrGecko]

Closed Starbucks

I was in Starbucks earlier today. There were about a dozen customers (mums w/ babies or old ladies) and 3 people working - though mostly they were talking to another girl who works there but had a day off (all in Polish and very fast). Later I noticed the "day off" lazily doing some stocktaking - so maybe she was being paid to work too??

Yes, they should cut jobs.

Anyhow - it was busier, and while drinking my coffee I thought a bit more about their clientelle. Not all the branches are going to be in the leafy suburbs of London... and something I dint take into consideration is the volume of business they do from people just dropping through, on their lunch breaks or whatever.

Either way, it has been going against me most of the time I've had it, and the McDonalds trade on the other side isn't keeping up with the losses.

I closed out the whole of my position.

SBUX +600 @ 10.33

As a fraction of the portfolio PnL = -0.7435%
As a fraction of the Capital invested PnL = -8.7368%

I attach an hourly chart showing my entry and exit, along with a daily chart to look at the trade in context. Had I considered the TA before getting into the trade, I would have put my stop above those two swing highs, at about 10.40 ish (dashed yellow line - remarkable coincidence really, if you look at where I actually did). As for the entry... well I sold into an uptrend and it cost me.

Of course, closing my short SBUX position left me with McDonalds unhedged. Been a busy boy today, so didn't really take alot of time thinking about a trade to put on against it. So, the first thing that came to mind was to short Burker King.

The weightings of the positions were calculated at present values rather than entry... if the two are perfectly correlated, I should have secured the profit of the MCD trade at the time - all of about $80.

BKC -288 @ 20.43

 

[MrGecko]

OK folks - confession time:

I seem to have made a bit of a c0ck up in my S'sheets. Nothing serious because all the trades are documented - it just makes a rolling PnL a little tricky. I had aimed to sort it out this evening, but I met up with Arabian for dinner and then the crappy tube broke.

I did close out WFMI today @ 11:14

As I said - all of the trades are documented, so getting an accurate PnL is fairly straightforward; its just that my own s'sheet calculated the NAV as a function of allocated capital, which knocks out the relative performance of realised profits and losses.

FWIW we are up today... the problem arose when I rolled the SBUX into the BKC position. See next post for a re-cap of positions and realised PnL. Before anyone asks, I have been trying to keep a record of day to day performance on a s'sheet, then I can take the historical returns and get some sort of Sharpe ratio - that is, dertermine whether I have actually generated any profits above and beyond that which could be expected given the risk I took (i.e. really outperformed the market).

Much love

G

P.S. Time and price of exit duly noted - chart to follow

 

[MrGecko]

OK - before I update the S'sheet and sort out all the mess, heres where we are now.

(the problem I have is that I can't reconcile the Daily PnL with the YTD returns)

If any of you sharp-eyed bods notices the SBUX and WFMI %Pnl of Portfolio figures don't add up, it's because they are calculated as % of the portfolios as it was when they were in it, not the new one (for example, I didn't run the SBUX and BKG positions simultaneously)

Anyway, see attached.

NOTE: I still have to plunk through some dividends... not quite sure what the protocol is on Divs. of a stock you are short (e.g. IBM)