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It Is Time For The Recoupling Arb

Tyler Durden's picture





 

The risk-EUR decoupling has hit the same spread to the outside as it did early this week to the inside - i.e. ES was "cheap" compared to EURJPY. The recoupling convergence trade here is once again a nobrainer. Which means that computers will gradually process the correlation and close the spread. We were concerned this could be a trap by someone far smarter few days ago. Turned out that "someone" was not only dumber, but also slower. Selling ES and going long EURJPY is now pretty much risk free. Ridiculous amonts of leverage on top of the trade are sincerely encouraged as a spectaular explosion will immediately render your trade TBTF and will guarantee Discount Window access for life.

 


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Thu, 06/03/2010 - 15:39 | Link to Comment Cursive
Cursive's picture

And with this late day equity thrust, the spread is widening.  Hmmm.

Thu, 06/03/2010 - 15:40 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Recoupling? you mean there's hope...

Thu, 06/03/2010 - 15:45 | Link to Comment Conrad Murray
Conrad Murray's picture

Get that disgusting display of indecency off my screen! AHHHHH!!!

Thu, 06/03/2010 - 17:42 | Link to Comment Unscarred
Unscarred's picture

Seems like those numbers are sagging a little bit...

Thu, 06/03/2010 - 19:29 | Link to Comment Double down
Double down's picture

Yeah, where is Leo with something tasteful?

Thu, 06/03/2010 - 15:43 | Link to Comment What_Me_Worry
What_Me_Worry's picture

I think a lot of people have high hopes for tomorrow.

The EUR/USD seems to pop off of 1.2159/1.2162 every time right now.

Thu, 06/03/2010 - 15:51 | Link to Comment jbc77
jbc77's picture

Personally, I want to see the Euro smashed into bits. Looks like 1.2159 has broken into the close, see if it slides farther.

Perhaps the central bank laughing stock gang has realized that the more they crank currencies they less effect it has, enventually the crank will be viewed negatively en masse and it will drop accordingly.

Thu, 06/03/2010 - 15:44 | Link to Comment plocequ1
plocequ1's picture

Updated score:
Bernanke 2
Tyler1

Thu, 06/03/2010 - 16:01 | Link to Comment Cursive
Cursive's picture

Give it 24 hours.

 

ETA:  In fact, if the CB's don't close the gap before tomorrow's open, we could have a big gap down on tomorrow's open.  The jobs report would be a great excuse.  BTW, I didn't junk you.

Thu, 06/03/2010 - 16:11 | Link to Comment plocequ1
plocequ1's picture

Dosent matter. The Pump software is new and improved and will stand up to Euro declines, Oil spills, Wars, Dennis Hoppers death, Etc. Guaranteed or your money stolen.

Thu, 06/03/2010 - 15:48 | Link to Comment hambone
hambone's picture

Anybody thinking now is the time take up some shorts?  Euro sinking to lows...S&P sitting on 200dma...jobs # coming in morning likely a sell the news event?.  How brave do we dare?

Thu, 06/03/2010 - 15:51 | Link to Comment Al Huxley
Al Huxley's picture

I've been adding to short positions today, although I feel like I should have some out-of-the money SPY calls just to hedge against those low-volume meltups that seem to happen so frequently.

Thu, 06/03/2010 - 16:17 | Link to Comment Greater Fool
Greater Fool's picture

OTM SPY calls don't really help much with that risk. A low-volume meltup means vol through the floor, so between that and theta over a period of several days of small gains you lose money on the short and stay about flat on the calls.

Thu, 06/03/2010 - 18:25 | Link to Comment ZeroPower
ZeroPower's picture

?

Increases typically lead to decrease in vol. Agree on theta, but you could purchase longer dated calls.

You could always go with a call spread.

Thu, 06/03/2010 - 15:52 | Link to Comment wagefreedom
wagefreedom's picture

as I just caught myself thinking I'd cover if we close again above the 200 day, I can all but quarantee that now is the time to short... goddamn look at that $ strength tho....

Thu, 06/03/2010 - 15:51 | Link to Comment aldousd
aldousd's picture

John Meriwether, is that you?

Thu, 06/03/2010 - 17:44 | Link to Comment Unscarred
Unscarred's picture

I lost track.  Is he on his third or his forth hedge fund?

Thu, 06/03/2010 - 15:52 | Link to Comment Gubbmint Cheese
Gubbmint Cheese's picture

in a 'normal' market where fundamentals mattered, yes.. absolutely short the crap out of this thing. But in THIS market? No - best to sit on the sidelines imho..

 

Thu, 06/03/2010 - 15:53 | Link to Comment Joe Shmoe
Joe Shmoe's picture

I agree.  But then, isn't it a lagging indicator anyway?

Thu, 06/03/2010 - 15:53 | Link to Comment Chartist
Chartist's picture

Hambone, individual stocks like WHR are setting up to be interesting shorts...JPM too...

Thu, 06/03/2010 - 15:56 | Link to Comment jkruffin
jkruffin's picture

I just about guarantee they will intervene overnight and push EUR/USD back to 1.23 minimum before the jobs report is released.  No way they let it fall under 1.2150  I would be very very shocked if they did.  GS was calling to go short, that is the first contrarion indicator to me, as it always has been.

Thu, 06/03/2010 - 18:29 | Link to Comment ZeroPower
ZeroPower's picture

1.2152 hit not going any low so far...

Thu, 06/03/2010 - 16:00 | Link to Comment What_Me_Worry
What_Me_Worry's picture

PPT earns their pay, yet again.  That was some nice work to raise the markets into a falling euro during that last hour.

Thu, 06/03/2010 - 16:02 | Link to Comment carbonmutant
carbonmutant's picture

"...a spectaular explosion will immediately render your trade TBTF and will guarantee Discount Window access for life."

...which will be shorter than the term of many current legislators...

Thu, 06/03/2010 - 16:04 | Link to Comment papaswamp
papaswamp's picture

i thought it was interesting the EUR tracked with the market (or vis versa) until late in the day..then decoupled. What happened? Investors decide now Europe is ok....or is everyone so pumped about tomorrows numbers? God forbid they come in lower than expected.

Thu, 06/03/2010 - 16:05 | Link to Comment n2dark
n2dark's picture

One way or the other tomorrow will be a bloodbath.

Thu, 06/03/2010 - 16:09 | Link to Comment Joe Shmoe
Joe Shmoe's picture

My dog just farted (yes, I have her in the office with me).

Thu, 06/03/2010 - 16:09 | Link to Comment John Law
John Law's picture

The EUR/USD is in a decending triangle on the 4 hr charts. It had a break out last night during the Asia session to the upside but that fell once the European session started so the euro may be in for a huge fall shortly. And the usd/jpy has sort of (it's not the strongest patteren I've ever seen) put in a head and shoulders which would put it around 84 handle if it falls thru the neck line.

Things a very intresting indeed.

Thu, 06/03/2010 - 16:19 | Link to Comment hambone
hambone's picture

Euro is teetering on the edge...whose turn is it to stoke the fire?

Buckle up everybody...we're 'bout to shoot higher or lower but either way gonna be a good sized move.

Thu, 06/03/2010 - 17:42 | Link to Comment Jace0228
Jace0228's picture

I dont have access to the forex, can anyone point me to an ETF or other equity I can trade on Ameritrade that will give access to this?

Thu, 06/03/2010 - 18:29 | Link to Comment ZeroPower
ZeroPower's picture

FXE and FXY. Watch for liquidity on the latter one though

Thu, 06/03/2010 - 19:05 | Link to Comment BeerGoggles
BeerGoggles's picture

I dont have access to the forex, can anyone point me to an ETF or other equity I can trade on Ameritrade that will give access to this?

 I would recommend you get access to the forex.

Thu, 06/03/2010 - 19:21 | Link to Comment Jace0228
Jace0228's picture

The genius of simplicity :)

Fri, 06/04/2010 - 09:05 | Link to Comment BeerGoggles
BeerGoggles's picture

This trade is going nowhere. Arbed 50pips in the hole so far and it has recoupled. Great.

 

Edit: closed for profit. Nice.

Out of interest, how do you calibrate the correlation? I have an overlay but due to axis autofitting, it makes it look like they are recorrelated when they are not.

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