Risk Spread Compression Time

Tyler Durden's picture

It's that time of the day when Brian Sack is holding the ES flat or rising even as his increasingly depleted arsenal to push other risk assets higher causes the RISK basket to decline. The latest: the ES-RISK (commodities, FX carry and rates) spread has just blown out to a 7 ES point equivalent. In the past 2 months the divergence has not failed to close upon emergence within 48 hours. Those with discount window access and wishing to take on the Fed in this relatively low risk pair trade, now that the Fed is about to step out of overt market manipulation (and just be stuck the covert one... and with the fiber optic cable to 131 South Dearborn Street) are as usual advised to take a long, hard look at a compression trade at these levels.

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Cognitive Dissonance's picture

Hang on to your balls, this is gonna be nasty.

Don Quixotic's picture

The spread truly gapes open after noon. S&P 500 volume plummets just before noon. There's no volume to pull ES down. It'll get ugly at some point, but this puppy's clinging to its 48-hour half life, it seems.

SheepDog-One's picture

I hope Sack is wearing a cup, his nuts are about to get pummeled.

dcb's picture

wish I understood what this post means and how to do it. I just know we are on almost all of my down trend lines longer term

frank's picture

what this means is that the fed(s?) are manipulating the market.

Concentrated power has always been the enemy of liberty.'s picture

I don't know, but the tv told me that obama is a dick.

SheepDog-One's picture

The editor in chief of Time got suspended by WHO?

Hedgetard55's picture

He forgot the qualifier for dick, which in this case, is "needle".

disabledvet's picture

exactly.  DO NOT TRADE THIS ADVICE.  ZH'ers are the best but there's always been this "bride of Frankenstein" element that crops up from time to time.  It never ceases to amaze me how many professional money managers STILL believe it even today.  Of course "by all means be on the other side of that trade."  I don't know about you but i'm looking for a promotion...

hamurobby's picture

Tyler mentioned going long es short term the other day, not that I was paying attention or anything.

plocequ1's picture

It means its compression time. Go long gas x

frank's picture

I don't know how we followed the markets before zero hedge.

Concentrated power has always been the enemy of liberty.'s picture

I shorted sack at 1320.  Which was 1316.25 in ES.

Innocent Bystander's picture

We are at ramming speed, if ES does'nt break... soon,

my shorts are going to teach me another lesson in...

hamurobby's picture

Did something break @3:47? Now Im short, a little.

dcb's picture

I also know if you follow the short treasury trade on the down slope it drops a few (4 levels) and backs up two. so it is a good trade to buy and sell tbt and tlt. of course there are always exceptions to the past.

RobotTrader's picture


What's the first item dumped in a panic when the compression happens?  GLD

Lots of guy are waiting for the day when GLD doesn't collapse like a cheap suit when there is the slightest whiff of:

- A credit event

- A stock market selloff

- Bad unemployment numbers

- QE abandonment

- Foreign countries going broke

lieutenantjohnchard's picture

Nope. wrong again. how can gold be the first thing dumped when it occurs after the events you describe? only in your retarded world of hampton envy and jealously would you come up with such ridiculous points given the 10 year track record comparisons of gold and the stock market, even as recently as the most recent selloff of stocks where gold outperformed.

dcb's picture

when the market was so low last thursdas it was time to buy and go long and close shorts. I reinserted them a bit too early, but made money either way. I have some stops in place of we turn around, and on the shorts if they go up, have stops in place. not much else I can do

Franken_Stein's picture


To everybody who went long wheat today: our condolences,

your coffin will be shelved right next to those of the corn longs.


tmosley's picture

Just more evidence that one should never play in paper markets.

In this era of universal corruption, you must hold it if you expect to own it.

Franken_Stein's picture


That's right.

Today you win 10 %, tomorrow you lose 50 %.


I left the markets in 2009.

Haven't touched my trading tool ever since, even as my broker is bombarding me with advertisements and brochures to lure me back in.

To no avail, since I know what Benny & The Bilderbergers plan.


JuicedGamma's picture

do keep your hands off the tool, could lead to blindness.

SheepDog-One's picture

That is the real lesson, stay away from paper anything.

surfsup's picture

Could one apply an fx only approach to this trade setup?  Short a risk pair and long a commodities pair?  

dcb's picture

the hourly rsi wilders hasn't been this low since we hit a mottom may 2nd. I'd feel better with two down days before moving up again, but you know when things are funny around these parts. I have been trading this on sso/sds almost all the time for good profits even in rising markets. initiate the short when hourly macd going up and low rsi, sell when going down, with short stops that sell off the sso. been great for me. what is happening now is very unusual (sorry peak)

Frankie Carbone's picture

I have never asked for trading advice here, perhaps it's a faux paux. But guys, I'm livid pissed off ready to go postal and, in a rare event while trading, not in a clear head. 

So, feedback please. I will of course make the final decision and accept the consequences entirely. 

I have 50 DXD call options 21 strike, Oct Expiry. They were actually UP in value until this week. In fact, I was particularly happy with this positon until now. 

This week, the market EXPLODES upward on vapor four straight days that would make a CNBS permabull ejaculate in his pants. 

MY DXDs tooks a 60% haircut in 4 days. Holy shit. 

I'm now worried that theta decay is going to kick in long before I can recoup any losses and with this manipulation sincerely doubt that the DXD will ever approach 21. Should I hold them until Q2? I'll tell you what guys. This retail trader is ready to throw in the towel and just go 100% gold bullion. But EVEN THAT I am worried will become a target. 

I spent a month researching this trade, and it was playing out beautifully. Then this shit. 480 point gain in four days on NOT ONE GODDAMN BIT OF ECONOMIC NEWS WORTH GETTING EXCITED about. 

Unemployment report today was shit. What does the market do? All the traders cum in their pants and drive the DOW up 1.25%. 


Fuck it. This retailer is out. I'm not playing this shit anymore. I've made plenty of trades that in hindsight I had said to myself "damn, I didn't consider that", or.. I just misjudged the markets. I'm no market guru but I've held my own in the past. 

Now this shit. Absolutely no way to explain it. 


By the way, I have taken a beating like this before, licked my wounds, figured out where I fucked up and moved on. Determined not to goof again. This is different. I never complain that manipulation is what screwed me. Never. I always own up to it. NOT THIS TIME. I'm gonna call a spade a spade here. 

So, should I unwind the position and take the pennies I can get? Or hold on and hope that Q2 earnings are fucked up? Or will it matter anyways? Or, will the market have an orgasm because "their fucked up, but not as fucked up and predicted"? 


/super pissed off rant off. 



aviat72's picture

This was one bounce which had been telegraphed. Do you think the banksters would have allowed Greece to default especially after they had worked out that ponzi scheme to rollover the debt? The SPX was repeatedly bouncing off the 200 Day SMA. Sentiment was in the dumps. End of the quarter approaching, Long Weekend approaching: this was ripe for a bounce. 


You have October options so still have time (theta does not kick in hard till about 6-8 weeks). However call options on an ultra fund have a double decay since these funds have their intrinsic decay when the markets chops. They are best used at turning points; not when the market is already down 10% and basing. At that point DXD puts might have been a better bet.

Frankie Carbone's picture

Yeah, the 2x effect is a double-edged sword. Knew that going in, but didn't expect this kind of "super bounce". If I go by technicals, all confirmations point to a reversal. If overnight futures are an indication, this thing blows past resistance AND the 62% retracement this morning. Since I'm already pummeled, I'll wait until Alcoa and a few techs report Q2. Not much more to lose on them at this point. Still, in addition to some great trades that I have made (dumping Ag at the top, shorting the shit out of it down, then buying back in all physical getting 60% more than when I started), I've had my fair share of dogs like the rest of you. Not once did I cry foul. But this one just seems to stink to high heaven. 

Yen Cross's picture

 Is it me? or has the P/M market been effectively restrained " Streets of N.Y. Style?"


     Or perhaps Chicago " CME' Style!  Gangstas in Frocks!

GoldbugVariation's picture

I can't figure today out.  Silver down 4%, gold down 2%, but copper is up?  Nikkei and S&P up?  The spread has expanded, not compressed, since TD posted.