DRValue Posted March 9, 2018 Author Share Posted March 9, 2018 @jmp8822 Good luck with your bet. I checked last night and the last time Cushing had this level of inventory wti was at $90. Couple that with the aramco ipo incentive for high oil prices and I think there is a case for higher oil prices especially with driving season round the corner. Oil market is tricky though. I've read that past investments that are offline can add millions of barrels capacity and because of that, immediate new large investment isn't needed. Looking at the wti chart again oil at $90 would finally give us that "U" shaped recovery. Link to comment Share on other sites More sharing options...
DRValue Posted March 9, 2018 Author Share Posted March 9, 2018 @jhcap Svxy had such a run if I could've got low price 2 year puts I would've taken a risk I think. You may have been able to roll them over each year if you were lucky and vol stayed low. Saying that I'm more of an intrinsic value option guy so I'm not sure I would've been able to determine the best strike price to go for. Basically my argument was that the status quo wasn't sustainable and at some point something had to give. Link to comment Share on other sites More sharing options...
nickenumbers Posted March 9, 2018 Share Posted March 9, 2018 @DrValue I suggest reading Hedge Fund Wizards, specifically chapter 7. in the meanwhile here are some summaries https://keanchan.com/2017/01/16/my-main-takeways-from-market-wizard-jamie-mai/ http://the7circles.uk/jamie-mai-seeking-asymmetry/ Great little read. Thanks for sharing it. Link to comment Share on other sites More sharing options...
jmp8822 Posted March 9, 2018 Share Posted March 9, 2018 @jmp8822 Good luck with your bet. I checked last night and the last time Cushing had this level of inventory wti was at $90. Couple that with the aramco ipo incentive for high oil prices and I think there is a case for higher oil prices especially with driving season round the corner. Oil market is tricky though. I've read that past investments that are offline can add millions of barrels capacity and because of that, immediate new large investment isn't needed. Looking at the wti chart again oil at $90 would finally give us that "U" shaped recovery. Thanks for the well wishes. You're right that consensus is there is lots of excess capacity. However, we've been drawing worldwide inventories at a record pace for the last 12 months, though all you read about is shale "flooding the market" and other headlines. If global demand continues growing at a similar clip as the last few years (1.5-2 million barrel per day demand growth), we should continue drawing at a similar pace, potentially drawing at an accelerating pace. We'll see - hope I'm right - will be paid a lot for it. Link to comment Share on other sites More sharing options...
DRValue Posted March 16, 2018 Author Share Posted March 16, 2018 US yield curve The gap between 10-year and 2-year US Treasury yields. A 'flattening' curve is often considered a portent of slowing economic activity, an 'inverted' curve has been a reliable predictor of recession. The curve hit its flattest in a decade in January and has flattened further in recent days on demand for safe-haven, long-dated Treasuries. Any clever soul wish to put forward a thesis on how to play the flattening to inverting 2/10 yield curve? We'll figure out later how to leverage it. Not really a bond curve guy but anything that hasn't happened in 10 years deserves to be looked at for possibilities imo. Link to comment Share on other sites More sharing options...
nickenumbers Posted March 16, 2018 Share Posted March 16, 2018 US yield curve The gap between 10-year and 2-year US Treasury yields. A 'flattening' curve is often considered a portent of slowing economic activity, an 'inverted' curve has been a reliable predictor of recession. The curve hit its flattest in a decade in January and has flattened further in recent days on demand for safe-haven, long-dated Treasuries. Any clever soul wish to put forward a thesis on how to play the flattening to inverting 2/10 yield curve? We'll figure out later how to leverage it. Not really a bond curve guy but anything that hasn't happened in 10 years deserves to be looked at for possibilities imo. Excellent question. Yes please, me too! Plus I think we would need to hear your narrative behind the strategy that you are proposing. Something like, I believe that this would work under this situation and until this happens. Or it will work as long as this... DrValue- It feels like it would be a short strategy premise. [i might be wrong.] I view short strategies as having more risk than a long investment strategy because of the timing of the short to cash out before the rebound. Additionally, the inverted yield curve, pointing to a recession, and then a recovery would force me to work through the probabilities and timing of it all. Just to spur conversations, I wanted to throw that in. Link to comment Share on other sites More sharing options...
DRValue Posted March 17, 2018 Author Share Posted March 17, 2018 The Fed is now normalizing it's balance sheet, lowering demand for treasuries, which is lowering near term prices and raising yields. Inclined to think the yield curve is flattening because we're in an historically low rate environment where rates can only really go up and return to the mean, rather than due an overheating economy being the driver . At some point I'd expect 10 year yields to rise to compensate for the extra risk, so the curve should steepen. Who'd buy a 10 year for the same return as a 2 in a rising rate environment? Demand for 10 should fall raising the yield. But looking at historic data I can't see a huge spread between the 10 and 2. Lots of moving parts here with the Fed policy and one of the longest cycles without a recession, which is making this difficult. Leaning towards long a steepening curve but would want an asymmetric return for my gamble. Found this for exposure: https://finance.yahoo.com/quote/STPP/options?p=STPP But no options available. Any idea how to leverage a steepening curve? Or thoughts on the above? I think I'm a bit late to the party for the thesis. Link to comment Share on other sites More sharing options...
DRValue Posted March 17, 2018 Author Share Posted March 17, 2018 https://finance.yahoo.com/quote/IEF/options?p=IEF&data-ipsquote-timestamp=1579219200 Jan 2020 puts available and their quite cheap. Interesting historic chart too for relative pricing. Link to comment Share on other sites More sharing options...
frommi Posted March 17, 2018 Share Posted March 17, 2018 Thanks for posting, might be a good hedge for a dividend heavy portfolio. The Jan2020 95/93 put spread has a payoff of 10:1, that looks like a really good bet. Link to comment Share on other sites More sharing options...
DRValue Posted March 17, 2018 Author Share Posted March 17, 2018 Thanks I'll take a look at that trade. I need to do a bit more digging into the underlying on that etf as from what I've seen the price movement may have already happened. But if you believe the curve will steepen, and the Fed forecast suggests it could, then there could be more of a movement to the downside. Link to comment Share on other sites More sharing options...
frommi Posted March 18, 2018 Share Posted March 18, 2018 Btw. the 200/100 Jan2020 put spread on TSLA pays 6:1 right now and a 120/100 Jan2020 put spread on QQQ pays 10:1. I can imagine that these are some of the best equity hedges right now. With just 3-4% of portfolio value in these bets you can hedge a whole portfolio for 2 years. I have this little feeling that this year is the year where you want to be protected. ( But i must admit that i had this thought every year for the past 4 years ;D ) Oh and one for the long side: SPG 200/220 jan2020 call spread also pays 10:1. Link to comment Share on other sites More sharing options...
DRValue Posted March 18, 2018 Author Share Posted March 18, 2018 ( But i must admit that i had this thought every year for the past 4 years ;D ) Same. And I don't think it will now myself cos of trumps policies. The west has been subsidising developing nations with trade deficits for years and changing the trade flows now should boost the economy. Add in the tax plan to depreciate purchases immediately for the tax loss and you have the recipe for a real boom. Short tesla had been on my mind. I don't think they ever hit targets but it doesn't trade on fundamentals so too tricky for me. Qqq and spg I'm not familiar with the tickers so will look at. May be a few days. Seem to spend all my time analysing these days and need to get away from these screens... Link to comment Share on other sites More sharing options...
nickenumbers Posted March 18, 2018 Share Posted March 18, 2018 I agree with the thesis on Tesla. I have tried to short it a couple of times, and I have come away with a small profit, but it took longer than I thought and the ride was bumpy. In the long term I think it is a matter of time before the arithmetic of Tesla catches up with it. Some have corrected me that Tesla is an energy company and not a car company.. etc. Elon and Tesla has that cultish following. And it could get the support of billionaire investors who are willing to advance his project despite the underlying economics. I don't even think that they have a moat around their vehicle.. It is a cool car, but it is not a moat. I just don't know how long it takes for the whole thing to break down, or morph into something else/different... The timing aspect of it is the risk to me. BYD, plus all the other US and German automakers are advancing in Tesla space as well now. I am reminded by the statement "A stock can remain irrational longer than you can remain SOLVENT." Any idea on how to short it by taking the long potential time horizon off the table? If you time it right, you will be paid handsomely.... Link to comment Share on other sites More sharing options...
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