Professional view on S&P 500

Discussion in 'Trading' started by ASusilovic, May 20, 2007.

  1. Risk free RATE OF RETURN :

    2 year - 30 year : 4,82 - 4,96 %

    FED FUNDS RATE : 5,25 %

    If investing into S&P 500 stock indices :
    Is there a reasonable risk / reward ratio > 5,00 % risk free, taking into account projected average earnings growth of 10 % for 2007 ?

    Answer : Not anymore.

    BUT : Investment Banks and smart players ( hedgefunds ) are squeezing shorts out of the markets. Especially the short option players were getting hurt.

    Consequence :
    For those playing the markets short, external event is necessary in order to overpower bulls.

    For those playing the market long, it´s good until liquidity is pooring into markets. And there is still lot of it...

    Best Regards

  2. basis


    Unsubstantiated garbage. If you want to make claims, give something to back them up.
  3. asap


    Quote from ASusilovic:

    very professional. congrats.
  4. An interesting aside basis. I track the performance of an SPX options writing fund. Naturally the guy got SMOKED on Feb. 27 for a bit over -20%. He's now posted losses in March and April as well.

    It seems some of these gamma selling "guru's" rolled down so far in March that the call side has now given them fits.

    Certainly not a squeeze or manipulation. Just the beauty of markets hunting for those weak "dynamic hedgers".........

  5. Don't you mean that it's good until liquidity isn't pouring into markets?

    I'm not commenting on your synopsis, as you haven't cited anything empirical to support the general claims you've made, but you must've misspoken as to the issue above.
  6. basis


    Here we agree. It's not my fault some of them suck. Nor have I ever said that I think options should always be sold. As a former floor options guy, I do have a predilection for the short side, because there was clear edge to be that way downstairs, and I'm just more comfortable short curve now.

    Having said that, I haven't had a short gamma position of any size in SPX since 2004 or something.

    BTW, is the fund you're talking about in one of the hf performance databases, or something? Just wondering how you're watching it.
  7. In Autumn Gold. Tracks CTA's. (Ace is the fund)

    When reading disclosure doc's (I just had to put one together) I'm aghast at how many CTA's are involved in the whole short gamma thing.

    And yea, like you probably the first 100 options trades I made were from the short side (selling bond opts against a crappy futs position :p ). Even now I have 2 options positions and both are short, lol.
  8. Well, I am going to ask the prop trading desks of GS, ML, BSC, LEH and JPM to confirm my "unsubstantiated garbage".
    Maybe I am going to consult the Alternative Investment Management Association for a supporting comment.

    It may also happen that I take a look at the OEX CPR and watch out for the weak dynamic hedgers out there...

    Are you a hedger ?
  9. basis


    If you take put/call ratios seriously, there's not much you can say I'll listen to.

    I'm not sure what being a hedger means. I have positions in options that I trade the underlying against, yes.
  10. More substantial than what most of us will ever provide on this board, including the guy who called it a garbage. Big boys are playing the sell hard-give 'em a little short signal-then squeeze 'em to death with big bids (they aren't really buying huge but herding the hurt to that direction) game right now, and this game was being played on the other side vigorously when we were going down as well to the chagrin of weak longs and put shorters but it won't last long. Maybe a reversal next week, possibly on Wed. Thanks OP.
    #10     May 20, 2007