Buying back GBP calls, using the profits to buy more puts...

Bought back the £5/point of Jun 30th GBP/USD 1.8600 Call that I'd sold
back on June 6th at 170.1, for 42.9, and bought a 1.7950 July 14th Put
for 29.3. ie. I made £636 from the call, and spent £644.60 on more puts
(I already have a 1.8200 Put expiring Jun 30th in £23/tick).

And yes I still have an outright short in cable of £13/tick. GBP is
going to get crushed...the rate differential between the UK and the US
continues to increase in the US's favour, and this is what has held GBP
up for years. Just check out the 20yr chart between GBP/USD and the rate
difference between the currencies (I use the first LIBOR contract, but
you could take base rates). It is truly amazing how far this has
diverged over the last year...GBP should be around 1.40 if it were
following the rate difference as it always have. I just have to be
involved in this one.

Also have some concern around my '07 EuroDollar contracts that I put,
about 30 ticks out the money as Bonkers Ben decides to hike rates
despite it being 100% unnecessary. It will just kill the economy more. I
will look to buy more '07 Eurodollars, maybe June or September, as the
FED will be well into their cutting cycle then. Also if you trade
Treasuries out there, surely you gotta be putting on 2s10s
flatteners/inversion trades!! Think 2s are about 5bps wide to 10s just
now (5.20% vs 5.15%)...that trend will only continue.

And I remain short Oil...a "vigilent" FED taking down growth, and a
China who is going to let its currency float more freely, will bring
down demand in a market where OPEC and others are pumping out the black
stuff as fast as they can.

My S&P500 short is in the money...let's double it:

Selling another £50/point of S&P500 Sep '06 at 1234.1 (my first sale was
at 1248.1), I don't want to have a strong view and not be short enough!
May put on more if it gets below 1200 (yes that's right, below! Not
waiting for a higher sell, I want to pile into the trade even bigger as
it moves my way).

Oil down, GBP down, my trades are starting to look good! Will update P+L
another day soon, for now it's back to Brazil/Croatia, its just kicked
off...

*** FROM June 7th...Blogger having problems *** Sold more Oil earlier...and its working:

Was thinking more about my Oil trade earlier, so sold another £10/cent
at 71.89 of July '06 US Crude earlier today. And its working. Oil is
falling. Stocks are falling. The US economy is slipping, and so it is
clear that stocks will continue to fall, commodities will fall, Crude
has been high on speculation and will fall to $50 a barrel in short
order.

Treasuries are a screaming buy, although the number one trade in the
market, that unfortunately I can't trade as IG Index doesn't offer it,
is Fed Fund July '06 futures. Last I looked it was trading at 94.80, so
pricing in 80% chance of FED hiking rates this month, but I would be
willing to spend £10,000 to win £40,000...must think of a way I can put
that on. With 10y Treasuries at 5%, they are NOT pricing in rate hikes.
Remember my trades from earlier this year, when I shorted 10y Treasuries
at 4.38% because FED was DEFINITELY going to 4.50% and a good chance of
carrying on...if the FED goes to 5.25%, 10yrs cannot hold 5%.

I am so bearish the US...so I need to be short...selling S&P:

Selling £50/point of the Sep '06 S&P500...1248.1 is the level, £50 per
big figure. Will look to double the size of this position if it starts
to fall say 15-20 points.

The FED has already gone too far, and looks like it will keep going. I
am no economist, merely a lowly trader, but even I see that the FED is
in the middle of a massive error with its rate rises. The slowdown is in
place from previous hikes, and the last year of hikes still has to work
its way into the system (e.g the Bank of England here in the UK reckon
rates take TWO years to fully work their way in...if that's the case in
the US, that's a lot of hikes!). Housing is going to get crushed, the
consumer is going down, GDP growth will slow massively, and corporate
earnings will fall away drastically from current record levels. And that
will take stocks down. I can't stand to not have the position on, so am
selling now, not waiting for a "bounce" like so many
commentators/strategists/morons advise.

Other trades I have an eye on is long Japan/short US, now that Japan
seems to be emerging from deflations, and also short 10y Treasuries
against long July '06 FED FUND Futures...if you can put this one on,
this is a no-brainer. 10y T = 4.99%. FF July'06 = 5.21% (94.79). You buy
FF, if they hike you lose 4bps, and so need the 10y to widen at least
4bps. If the FED is at 5.25, you can be sure the 10y will not be lower
than 5.03%!! And if the Fed doesn't hike, you make 21bps on the FF, and
as long as Treasuries don't rally further than 4.78% you'll be in the
money...with the FED at 5.00%, I think 10y struggle to trade over 20bps
through. Hope that made sense, as it's easy money.

Also looking at trying long DAX/short FTSE again, now the DAX is 200pts
below the FTSE. This one is volatile, but should work as the German
economy continues its expansion, and the UK continues its slowdown due
to over-reliance on slowing Government spending.

And finally, for all you traders out there, one of the errors I have
definitely made this year is in the sizing of my trades, with a few
trades having P+L swings of almost £10,000, and others only having
swings of £1,000 or less, despite the underlyings having large moves.
I'll try to be consistently a bit bigger in my trades where I have a
belief, and be more methodical about trade sizes.

Some new trades:

AS I mentioned yesterday, I added to my short in Crude Oil, selling
£7/cent of US Crude at 72.72.

Also, as I mentioned, I was wanting some impetus to take on the
anti-consensus long $ trade...was reading that HBOS strategists just
called for 1.12 year-end rate on the Euro, citing a slowing US economy
reducing the current account deficit...this is a view I also take, as I
view the US as entering a slowdown, whilst Europe/Asia continue with
decent economic growth...thus less imports to the US but continued
exports...everyone needs to buy more dollars!! Since my preferred trade
is still short the pound against the dollar though, I sold some Jun 30
ATM calls to buy OTM puts...specifically:

Sold 1.8600 call (jun 30) at 170.1 in £5/point (so taking in £850.50
premium), against buying 1.8200 put (jun 30) at 37.6 in £23/point (so
spending £864.80 in premium)...so a net flat trade that will work out if
we get a sharp fall this month. With the way markets have been moving
lately, I favour sharp re-pricings rather than gradual drifts.

Bigger picture, I want to position the book on the basis of a US
slowdown, and also try and turn stuff over a little mor actively...if I
am to make a lot whilst keeping the sizes manageable, it's the only way.

The picture is getting clearer...

The US ecomony is as transparent as ever...the US economy is in slowdown
mode, the FED hikes have taken effect and will further increase their
restricitve effects as the last few hikes work into the system, the FED
has gone too far, inflation talk is all the rage but within 6 months
DEFLATION will be the talking point. With a slowing economy and higher
commodities, profits will get hit, stocks are going down, Treasuries are
going up, and Oil is going down.

Inflation will turn out to be a non-event...when unemployment starts
increasing, prices will stop going up! Its so obvious, and yet only a
few of the smarter commentators (Dismally.com, RandomRoger,
TheBigPicture etc) seem to see the slowdown, but even they still think
inflation will continue on up and so the FED has a dilemma...NO! There
is no dilemma...stagflation will not occur when the economy is weak AND
there is confidence in Central Banks (which there is, despite everyone's
whining about Bernanke).

And as for oil...there is plenty oil in the world to go round, and when
the US starts clearly slowing down, the overhang of supply and too many
long positions will crush this market.

So the trades are...long Treasuries (which I have on with my £150 long
in Mar '07 Eurodollars), short stocks (I just day traded the DOW in £3 a
point, selling at 11,162 and it closed at 11,049 so making £339
pounds...I plan to continue to trade from the short side, and have a
core position on with my July 10,450 Put on the DOW), and short Oil,
where I am only short £3/cent and need to increase this...I'll try to
put it on tomorrow when the market is open.

And as for the dollar...I am not entirely convinced it is going to drop
like EVERYONE else in the market. I tend to follow it against EUR and
GBP, and I hate both those currencies. the EUR will eventually fall
apart as the whole monetary union will not work as it is not flexible
enough, and countries can cheat by running large budget deficits, and
the UK is similar to the US so should have rates moving similarly, so
the US having higher rates than the UK will eventually crack the pound,
especially when people realise just how much this country is falling
apart under a socialist tax & spend government. I wouldn't say I'm a
dollar bull, but I am not finding the real reasons to sell it.