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B C 18,000 Q 2,000 P 2620.00 % 14.6% BBRY 10.31 V 9.00 SL 9.50 @ 6%
B C 5,000 Q 330 P 3.30 % 0.1% EWM 15.16 V 15.15
B C 19,208 Q 180 P 786.60 % 4.1% IWM 111.00 V 106.63
B C 96,250 Q 1 P 1025.00 % 1.1% ES12-14 1945.50 V 1925.00 SL 1771.00 @ -8%
Total 138,458 Total P/L 4,435
Cash 47,792
Net Liq 52,227
ES Initial margin 5,060
ES Maintenance margin 4,600
Excess equity 47,167
Notional value of ES 96,250
Max loss 138,458
Account size 100,000
Leverage ratio 1.38
From 10 October 2014
To 24 October 2014
Days 14
Performance 4.4%
Benchmark ES 1.1%
10 year yield (annual) 2.3%
10 year yield (period) 0.1%
Market risk premium 1.0% Alpha 3.4%
Drawdown too large?
Care with composition. Investing globally. Benchmarking using US market.
Guaranteed delivery uses listeners in low latency environments to confirm data is true and accurate on receipt. Idea: program fast peer-to-peer cross check of data. Napster for traders. Challenge would be to find sufficient bandwidth to run the cross check live.
There appear to be points in pricing data streams, even from exchanges, when the indicated price does not reflect the price at which trades are actually taking place. Some data streams specifically mark when this happens. Is this is a price arbitrage opportunity? Would need to be co located and able to execute direct into the exchange.
B C 18,000 Q 2,000 P 2540.00 % 14.1% BBRY 10.27 V 9.00 SL 9.50 @ 6%
Total 18,000 Open P/L 2,540
S C 5,000 Q 330 P -62.70 % -1.3% EWM 14.96 V 15.15
S C 19,208 Q 180 P 1803.60 % 9.4% IWM 116.65 V 106.63
S C 96,250 Q 1 P 5300.00 % 5.5% ES12-14 2031.00 V 1925.00 SL 1771.00 @ -8%
Closed P/L 7,041
From 10 October 2014
To 07 November 2014
Days 28
Performance 7.0%
Benchmark ES 5.5%
10 year yield (annual) 2.3928%
10 year yield (period) 0.2%
Market risk premium 5.3% Alpha 1.7%
S C 18,000 Q 2,000 P 4800.00 % 26.7% BBRY 11.40 V 9.00 SL 9.50 @ 6%
S C 5,000 Q 330 P -62.70 % -1.3% EWM 14.96 V 15.15
S C 19,208 Q 180 P 1803.60 % 9.4% IWM 116.65 V 106.63
S C 96,250 Q 1 P 5300.00 % 5.5% ES12-14 2031.00 V 1925.00 SL 1771.00 @ -8%
Closed P/L 11,841
From 10 October 2014
To 12 November 2014
Days 33
Performance 11.8%
Benchmark ES 5.8%
10 year yield (annual) 2.3928%
10 year yield (period) 0.2%
Market risk premium 5.6% Alpha 6.2%
Considered short of ES at 2037.00. Did not execute. Futures back below 2000 at 1996.75. Market swings above and below what intrinsic factors imply.
Once analysis done can be very idle with time as a value investor. Need other things to do
Not necessarily about exiting at value. Think about letting it swing.
Oil
2004-2014 oil price falls generally lead to ES gains one month later except during financial crisis. Size of current move is a concern.
Move up in oil volatility plus declining prices traditionally suggests demand side worry. However, declining prices follows OPEC inaction and strong US production which is more of a supply side factor. Deflationary. Will Fed comment on this?
US rigs moving to idle. Capex delayed.
Smart and value investors Blackstone and Berkshire getting active in downstream. Oaktree active in energy high yield.
Probably creates M&A consolidation opportunity upstream - diversifies risks, greater production flexibility to price swings in future.
Watch RBOB for transmission to consumer.
Conclusion
US fundamentals firm - unemployment, retail sales, housing, productivity. Marginal expectation misses on Europe and Asia data but not wide misses. Implies sell off overdone?
US spending bill passed at weekend.
Net net oil is a tailwind.
Earnings been positive and guidance broadly confident since November.
Now leveraged into market. Rationale for leverage:
Yellen said: rate hike in a "couple of meetings." Journalist asked what is a couple? "A couple means at least two." Unusually this is delivering interest rate certainty till mid 2015.
Speculation is:
Post Fed day ES 03-15 ended in 2060 area. ES 03-15 now at 2038.00. Low volume trading past few days seems to have pushed market away from where higher volume agreed on a price.
USD is getting expensive versus GBP.
UK solid domestic job growth and inflation continues so UK continues active monetary policy.
Risks:
UK is heading to a general election. Weakens GBP?
No Greek exit of Euro. Why vote to go to a sovereign currency which (i) depreciates own assets further (ii) destroys country credit?
Need to run leverage calculations and set exit at break even allowing for currency volatility.
Portfolio size $111,841. Of which $100,000 was initial capital.
MAE of Z trade with Z going down to 6426.50 = $5,428 on a constant currency basis. Of which $70 was mitigated by a depreciating GBP.
Plus:
MAE of ES trade with ES going down to 1983.75 = $812.50.
Total MAE $6241.
Bad
- Need to define (i) risk parameters, (ii) anticipate downside impact of an adverse move and (iii) comply with parameters.
- The MAE represented 5.5% of portfolio size.
- The currency impact -- continued weakness in the GBP (decline 1.3% during trade) was a drag on profit.
- There were better ideas that you were prevented from executing because of the MAE on this trade.
Good
- Idea was good. Probably right longer term macro and will play well over few weeks. The Fed needs to guide on the USD.
- The currency impact -- reduced mark to market losses but could have made things worse.
Observations
For personal investment break even against initial capital is acceptable a few months in. As you move to profit need to move to define MAE. Set at 5% going forward.
Debate
Having made a more bad than good trade that is now profitable let it run? Decision = no. Want to get back to operating within risk parameters. Plus computing margins and currency conversions are a pain.
1. Pershing Square / Bill Ackman @ 32.8% return.
2. Quantedge 32.3%
2. STS / Michael Craig-Shenkman and Scott Burg @ 32.8% return.
"Hedge funds as a group had a horrendous 2014, with an average return of just 1.6 percent through October among the 2,400 funds that make up the Bloomberg Global Aggregate Hedge Fund Index."
As proxy for S&P 500 index performance:
ES @ 31 October 13 1751.00
ES @ 31 October 14 2011.50
+14.9%
Only 16 of 2,400 funds in the Bloomberg Global Aggregate Hedge Fund Index beat the index net of fees.
US Exports of Goods and Services as % of GDP = 13%.
Primary trade partners for exports = Canada (17% of total), Mexico (13%), EU (10%), China (pegged FX 6%), Japan (4%).
US Imports of Goods and Services as % of GDP = 17%.
Primary trade partners for imports = China (16% of total), Canada (12%), Mexico (10%), EU (10%), Japan (5%).
Since the middle of last year US exports got 13.1% more expensive and imports got 13.1% cheaper.
The US runs a trade deficit so is a net importer. International trade often uses USD as basis and is settled in USD.
Imports: the strength of the USD can help lower costs and enhance earnings in the short term. Note China (16% of total) is pegged FX so effect muted slightly.
Exports: exporters can absorb some of this by discounting short term. However, strength of the USD is making USD exports representing 13% of GDP, less competitive.
