UPDATE The comments I made last weekend about the current oil price trend need to be corrected in light of changing expectations about economic growth. Concerns about the impact of devastating hurricanes on growth have made the stock market much weaker and whenever oil prices go down, the stock market doesnât respond anymore with an almost immediate surge but continues to go down instead. With increasing uncertainties about growth, the trend for oil is now flat at best. ---------------------------------------------------------------------------- Transactions made: Sept 19th, on market close - sold 1 DEC05 CL 68 call at $4,040 to liquidate a position. ----------------------------------------------------------------------------- Portfolio Value: Sept 21st (at market open) - Cash = $9,981.25 Total = $9,981.25
Will get long on stocks with 1/3 portfolio on market open. This will also constitute an hedge to short position on USD.
THE WEEK IN REVIEW Political uncertainties in Germany are still the main concern in foreign exchange markets. Oil was less of a concern as it failed to reach $70 or anything near that level. The stock market was oversold Friday morning and started a rebound. ---------------------------------------------------------------------------- Transactions made: Sept 19th, on market close - sold 1 DEC05 CL 68 call at $4,040 to liquidate a position Sept 22nd, on market open - bought 1 DEC05 DX 92 put at $3,930 to open a position. Sept 23rd, on market open - bought 4 OCT05 OYMC 105 calls at $940 each (=$3,760) to open a position. ----------------------------------------------------------------------------- Portfolio Value: Sept 23rd (at market close) - Cash = $2,291.25 - 1 x DEC05 DX 92 put @ $3,400 = $3,400.00 - 4 x OCT05 OYMC 105 call @ $1,040 = $4,160.00 Total = $9,851.25
Will get long 10 Yr Note on market open and liquidate short position on USD. The bond rally that started after last week's FOMC policy announcement was interrupted by fears of extended dammage to oil refineries. The rally will probably resume this week and a long position in bonds will also constitute at this point of time a good hedge to my long position in stocks.
Steve, You keep stating that certain positions will constitute good hedges to your other position or to your portfolio. Are you sizing your bond position so that it is delta-neutral with your portfolio or are you saying that this would be "somewhat" of a hedge just in case... Thanks.
My hedges are not pure hedges and are built with two positions that are both expected to make profits individually. They are called hedges because the current economic environment and the relation between the two markets in which I took positions are such that the two markets cannot both go the wrong way for an extended period of time. Using my current trade as an example will clarify everything: I took a long position in stocks and the risk I take comes from the possibility that the market becomes unexpectedly pessimistic about growth. At that point I would loose money with my stocks but most probably make money with my bonds. Another worst case scenario would be for oil to shoot up, which would make both stocks and bonds go down but this scenario is unlikely or unlikely to last more than a couple of days for reasons mentioned in my journal and several posts. Oil needs growth to go up and its reaction to growth as already affected growth. If Iâm right and both stocks and bonds end up celebrating lower or more stable oil prices, like I think they will, I'll make money with both of them. The size of my positions is based on a rough estimate of two factors: volatility and degree of confidence.