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As VIX Plunges, Goldman Correct On First Leg Of FOMC Knee-Jerk Trade; Will Its Other Prediction Of SPX At 1,125 Also Hold?
Yesterday Goldman recommended two trades on how to trade the post-FOMC trade: the first, was to sell vol. With the VIX plunging this trade is now solidly in the money. The second leg, the medium-term one, buying S&P November 1,125 puts, i.e., preparing for a subsequent market sell off, has yet to materialize. And with the euro now at nosebleed levels for Europe, expect to see some fireworks from Europe over the next few days designed exclusively to kill the EUR, send the dollar higher, and complete the Goldman trade. We are concerned what this may mean for the viability of Ireland and/or other peripheral countries.
From yesterday's Goldman recommendation:
"VIX Futures are at 24.3, a hefty 12 points
above or 2x the average realized vol level of 12 post midterm elections.
If the FOMC and election results meet expectations, we see a scenario
where implied vol could fall notably. We like using VIX options to
position in a limited loss fashion."
As for the subseqent reaction:
Expectations for QE2 and the election are high and fear as measured in
options has been cut in half. We analyze the “optimal put” to buy for
those who are fully invested, have participated in the recent market
rally, and are concerned that the Fed or the election may disappoint. In
a scenario where the market pulls back -2.5% by market close Wednesday,
the optimal hedge is buying SPX November 1125 puts for $6.6, in our
view."
Keep an eye out on the S&P over the next few days as profit taking on In the Money VIX positions begins
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So should we buy VXX?
I bought around 17 uggh. And now they're doing a stupid 4:1 split. It may spike back though, especially after the Ron Paul takes his comitee seat and Europe collapses. Guess I'll still take a chance on it.
Don't feel bad - my average is 21 - didn't realize I was playing against POMO till I found ZH.
Didn't Goldman sell volatility in April/May and get smoked?
In the long term it's going to 0...you might as well buy FAZ
you play here well
I mean as a short term trade?
"Keep an eye out on the S&P over the next few days as profit taking on In the Money VIX positions begins"
ok, whatever, i guess. fucking goldman....
Europe will begin feeling the actual effects in raw material costs, and earnings due to the high Euro which has been setting up. We are hearing from the zone that there is significant worry as they believe our Fed has completely lost all control and credibility over the U.S. markets. Keep up the good work...
That's odd that Goldman Sachs would sell volatility, then simultaneously buy a put in the front month in such a short time frame. They must have conviction that this will work.
Net-net you'll still get .10 cents out of the trade if you lose all your money on the put.
Shit. Nov SPX 1125 put is now only $2.40. Think if you had paid $6.6 for it.
Some of the best prose I have read lately:
"Low-volume rallies have been the bulls’ modus operandi since the Mother of All Bear Rallies began in March of 2009. Typically, index futures that trade round-the-clock get squeezed higher on extremely light volume in the dead of New York’s night. It is no great trick for firm traders to accomplish this with relatively modest capital outlays and very little risk – especially on quiet Sunday nights when there is but a mote of faintly positive economic news on the tape. Once the short-squeeze fuse is lit, DaBoyz sit back and wait for bears to come stumbling out of their lair, choking and coughing on smoke, when the NYSE opens. Typically, bears will be in a panic to catch up with the index-futures rally that has occurred overnight. The sure-fire money-making scheme concludes with DaBoyz selling into the rally that they themselves stirred up. Often, the short-covering is sufficiently urgent to keep stocks buoyant even after bears have thrown in the towel and taken their losses."
http://news.goldseek.com/RickAckerman/1288677660.php
Didn't I hear today that the BoJ has moved their meeting up to tonight? Wouldn't that be so that they could flip the bird back at Ben?
The insanity of it all is simply out of control. I wonder why the f'n wheels have not already flown off this crap wagon?
Fading Goldman is the correct path as usual.The ECB will not destroy the Euro,and the Nov puts?Obviously the market is just going to go straight up from here,1200 here we come?
The EURGBP is also another good indicator of Euro strength,Bernanke has spoken and is going to carry it out exactly to the word- destruction of the dollar and the creation of further bubbles.Ron Paul and the deflationists don't stand a chance.
Noone can say they were not warned,Bernanke is carrying out the threat in his 2002 "printing press speech".I wonder when we will next hear from Mish telling us all this is still deflationary.
Buying puts is a losing proposition, maybe when the SPX gets to 1250 or so, we should be due for a correction. Until then, stay LONG and ride Bennys coattail, its the only way to make money.
"In a scenario where the market pulls back -2.5% by market close Wednesday, the optimal hedge is buying SPX November 1125 puts for $6.6, in our view."
But the conditions of that scenario were not satisfied today (Wednesday), as we closed just short of 1200. This optimal hedge was only meant to be put into play if the market sold off the announcement by collapsing 2.5% (wow, I would have liked to see that with PIMPco and GS money selling vol at the same time). Unfortunately, the market took out long stops and then squeezed shorts for the hundredth time. No SPX put necessary. Proceed as planned>> SP 1250 or 1300.
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