Leveraged Theta

Quite the action today in the fixed income market. I’m glad we got a little bounce, its good for the business I’m in, naked call selling! As my (one or two) readers know, I’ve been very bearish on the long end of the yield curve, especially for US debt…the duration has made for some great derivative trading.

I owe a big thanks to Joe Dowling, Hedge Fund Manager of NYC and Greenwhich origins. I had the opportunity to discuss investment strategy with Joe last year, when we discussed amongst other things the impact of the printing presses on treasuries. Joe fuelled my inspiration to learn and ramp up which has resulted in amazing gains in my portfolio, thanks Joe!

I just looked up my trade log, its been 11 months since I made my first speculation on fixed income with TBT!  Since then, I’ve moved onto ZB, which I think any serious trader should.

I’m planning on holding some form of my naked 120′000 July calls on ZB position open, and rolling as necessary.  There is still lots of this trade left, we are not even finished the first inning.  27 years in the making. My guess is these 120′000 strikes will expire worthless this month, and the 118′000’s next month, then so on and so forth.

Warning: I do not recommend shorting ZB calls, to anybody who doesn’t understand all the characteristics of how fixed-income can move combined with advance option models.  I consider myself extremely well equipped analytically and mathematically for trading these vehicles. They are not for the faint of heart.  I’m happy to answer e-mails and help anybody with questions.

CCC TTEK NLC FSLR HEK ERII GLD CL/LO TBT SRS AMZN CVA VE Hyflux Vestas JEC RIG RIMM AUY CCJ ITU CREE

 …and precisely 93 other water stocks.

I may or may not have positions in some, all, or none of these names at any given time…

So, beginning of this year, I gave my Sony, exactly $10K USD to manage for me.  I was scared at first, to put a computer in charge of some of my money…you know, “What if it messed up?”, right? Below are the YTD results.  Not great, absolutely, but on a relative basis…it’s been on fire.  It danced magically, with the VIX and probability models, to shift the skew of the monthly returns on the S&P a little to the right, and bumped up the kurtosis really well.

I’m now, officially done talking about how my algorithm works online…because, I’m pretty sure by the end of the year, it will be one of the newest private money vehicles available to my friends and family.  I know the overall numbers aren’t that impressive, but keep in mind, it’s only one quarter, and it survived navigated the bear, and a 6 week bull.  To be leading by 7.47%…I think, is fantastic.

Below, is just a slight bit of insight that I will command, once some more time and tape tick by.

Plotted above are the S&P analysts’ estimates from the 7th against the 14th…for the S&P, below, is just financials.

So, was the ~3% Week over Week in the S&P justified? Time will tell.

Next up, i’ll be programming my database to alert me, when we get negative correlation between analysts estimates and market direction.  I think opportunity will knock if the situation arises…this will take a year, of data collection, at least…but…I have time.

I know, I’m playing with the boundaries of market causality, coincidence, and correlation again. When I get a real blog, that’s what I’m going to name it. “The 3 C’s of market participation”.

A comment I agree with…in reply to Tyler’s great post:

<quote>

 ”So GS paints the tape ahead of its capital raise, quants move to the sidelines without leverage, vanilla cash comes oops-ing out of money markets, the banks leak record earnings, and the market trends to break all VWAP dislocation records.”

Bingo!

GS called the top. Don’t forget to turn out the lights when the last retail investor leaves.

</quote>

go read zero hedge, smart guy…then check out Peter Schiff, and how he expects new lows “in nominal terms”, haha, who says that?

And, if you missed it, my pal and yours (just joking, barely know the guy) Hugh Hendry is taking profits…while Douggy Kass is thinking this is a sustainable rally, while Ratigan thinks the rally is for suckers.

The web is a great place.  In less than 24 hours, from idea to beta, I programmed this.  I did it for less than obvious reasons. 

Can you answer me, ‘was the recent surge in stock market prices accompanied by a surge in analysts quarterly earnings estimates?’  I can’t answer that, because I don’t know what analysts were estimating, a month ago.  But, a month from now, the site I programmed will be able to pull up “historic future estimates” from any day.  They change, weekly.  So, I’m looking forward to seeing what comes of this.

I can quickly plot the Earnings Per Share estimates from today’s date:

and this…

And if you want more, check out this. Or you can pick your own sectors and compare, here.