Tuesday, October 24, 2006

Covering the EURIBOR short, and buying longer-dated S&P puts


OK...on Sep 29th I sold £75/tick of Dec '07 EURIBOR @ 96.25, I just
bought it back yesterday (Oct 23) at 96.12, so pocketing £975. Trade
worked out nicely as ECB came out with some hawkish rhetoric this month,
although I feel this should have made about £2500 as I missed my entry
point by a day as I was working and I faffed about before putting it on,
and since the market was lower than what I wanted I did half the size I
intended. Dammit. I continue to make money on interest rates, but not
nearly enough due to me sizing it too small. Whilst my DOW and S&P
shorts are swinging about in thousands of pounds, my rate trades feel
like they're about a fifth of the size. Must try harder.

And I just increased my Equity market short. The more I read, the more
the bigger picture seems to be that the housing boom has come to a firm
end, wage increases are not keeping up with inflation, inflation itself
is higher than the FED wants (and just maybe the FED will hike again),
profit growth seems to be slowing (and there seems to a decent chance
that profits fall), and there is a DEFINITE risk of consumers pulling
back in their spending.

Also it amazes me that corporates IN GENERAL make so much money
considering we are 10 years into the Internet Age, I would think that
the price transparency and lower barriers to entry that the internet
offers would cut into profits.

So despite having taken a BATH on my S&P short, and my DOW option trade,
I just paid 20.48 for a 1330 Mar '07 PUT on the S&P, in £250 per tick,
so £5,120 premium, which is my total downside. With volatility so low,
now is the time to be buying options, and I like pushing them further
out (the other ones I could have traded were only until December).

Bring on the crash.

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