BTFD! One Chart Shows Why This Is The Only Strategy That Matters

Tyler Durden's picture

Submitted by Daniel Drew via Dark-Bid.com,

We've all been told to BTFD. One trader even went so far as to post it on his license plate like a central bank billboard.

Now, we finally have a chart to remind us why this is truly the only strategy that matters in these "markets."

BTFD

Yes, it's really as simple as it sounds. Whenever the market is down at least 1%, you buy the index with a little leverage, put on your central banker hat, and watch the money roll in.

With hedge funds struggling to perform and major funds actually shutting down, it makes you wonder just what quantitative gymnastics they're trying to pull off. All they had to do was BTFD!

And with the Fed admitting that $4 trillion in QE will be needed to offset the next crisis, it doesn't appear this strategy is going to lose its luster any time soon.

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waterwitch's picture

That is until DB goes kaboom!

slaughterer's picture

We will see a surprise market crash and burn this week.  

jdow's picture

I have puts that will turn to nothing if it doesn't.  I'm feeling more stupid by the day in these elevating markets.  I need to rethink my strategy.  We are headed for a Zimbabwe Market.

BetaGap's picture

First Time ever ZH is bullish

Heavy's picture

This ends when trump puts yellen, and hrc, in prison?

hxc's picture

He oughta go after Benny B as well. I'd love to see Trump chase him around the world like Obama did to Snowden and Assange.

SimmerDown's picture

@jdow Same here. Painful to watch. Ironically they were a hedge against my minig stock position. Fortunately (delusionally?) that was a straight equity purchase.  

Haus-Targaryen's picture

Do you have first-hand inside knowledge of this, or have you been watching too many Dr. William B Mount videos?  

Haus-Targaryen's picture

Ok then.  

Appreciated.

(Not trying to be a dick, just skeptical of time-frames) 

Mustafa Kemal's picture

"I am not uncertain."

Nor informative

Haus-Targaryen's picture

I've been thinking about this post for quite some time this week.  

Normally I write stuff like this off here on ZH as most commentators show up here predicting the end of the world and when you look -- have been ZH active for a year or less. 

He's been around for 6 years, which means its likely he had an account at the old site before ZH got its own domain.  

While this isn't conclusively indicative of him being accurate -- it definitely gives the guy, at least some credibility.  

I wonder if he works for Moody's and knows about DB downgrade TBA on Friday.  It would trigger CoCos and could be problematic for Europe's biggest risk. 

charms's picture

It will require a catalyst to turn the algos to the downside. It appears though they are inherently geared for upward rather than downward movement. The potentially scheduled high volatility releases for the week are:

  • FOMC Minutes on Thursday
  • Retail Sales for September on Friday
  • Consumer Sentiment Index on Friday
  • Yellen Speech on Friday
RaceToTheBottom's picture

"That is until DB goes kaboom!"

What, then it becomes BTFDB?

buzzsaw99's picture

so easy, gartman, well, not gartman, but a cave man could certainly do it.

Heavy's picture

but if gartman said tommorow he was doing this then what happens?!

hxc's picture

#prayforgartmanpocalypse

jdow's picture

I don't know the point of hedging these days.  Any drop is swiftly covered to form a short squeeze.

jdow's picture

Don't hold your breath.

slaughterer's picture

Sorry BTFDers: your time has come: see you on the other side of ES 2100 by EOW.  

Paul John Smith's picture

He's right ...

All minds must buy dip ...

https://youtu.be/-l9-tjer0ns

Hammer823's picture

Thusday and Friday are perfect examples of how rigged the stock market is.

Both days the DJIA was down triple digits.  

And both days, in 8 minutes exactly, the market reversed all losses in a straight shot.

This type of market action is never seen on days the market rallies triple digits.

There is always a flurry of reistance and reversals when the market drops.

Our stock market is completely manipulated.

The stock market is too big to fail.

That's why BTFD works.  Because the stock market HAS to work.

401k's, IRA's, pensions, 529's, state budgets, consumer confidence, purchasing power, tax revenues....

...all dependent on the stock market.

 

 

luri's picture

DEPENDENT = CONTROL ,,, "DO WHAT WE SAY OR WE CRASH THE PRICE OF EVERYTHING YOU HAVE - AND WE 'GATED' YOUR ASSETS JUST TO MAKE SURE YOU ARE UNABLE TO FLEE"

 

GeoffreyT's picture

This type of market action is never seen on days the market rallies triple digits

 

DAX does it all the time, although it takes longer than 8 minutes (it rockets upward, slows, hits stall speed, has one last gasp, shits the bed and drops 100 DAX points in an hour): it's one of my favourite plays.

Dow did the same thing on Oct 7 (spurt upwards ~100pts by 0700GMT; two hours later it had given back 200pts).

 

Also, it's generally the case that during a period of upward momentum on a given timescale, on lower timescales the rips will be stronger than the dips. That's just common sense.

Dow and SP are both in what I would call 'softening' weekly uptrends (each dip to oversold takes place at higher prices) which is why the daily trend is kinda flat and the hourly is all over the shop. I base most of my 'bias' decisions on the daily, and positional decisions on hourly: I have a short bias on US markets at the moment, but no positions in US indexes at the moment (I'm waiting for a spurt upwards so I can get short: a short bias means I need more trade criteria to be hit to enter a long position).

Not for nothin', but the weekly configuration looks very dodgy: last time the weekly showed this configuration was on 20110424, and the Dow lost 2500 points in the following 3.5 months.

jdow's picture

Seriously, there is really no way to hedge anymore.  This is why most hedge funds have thrown in the towel.  The only direction is UP.

Conax's picture

"Groundhog Day" was a pretty boring movie. Like these shit markets.

Paul John Smith's picture

It's moar like a movie ...

... about people watching a movie that keeps repeating ...

... about people that watch a movie that keeps repeating ...

f(x) = x -> f(x)

"And the galactic centipede eats its own shit"

jdow's picture

I think I may just try "BTFD".  My present hedging is a joke.

Seasmoke's picture

This is all fine and dandy. Bubbles everywhere and Mr. Yellen is doing a wonderful job. What I will never understand is how Gold is not above $2,000. Seriously, I don't fucking get it.

Paul John Smith's picture

Because, like ...

Bix Weir says there's like millions of tons of gold in the Grand Canyon ...

... and Alan Greenspan figured out the rational curve value function [root(a)] ...

... and they want to like, you know, crash the system ...

... for America ...

adr's picture

Multiple expansion does not create economic growth.

In fact multiple expansion hampers economic growth because money that would have been used for productive purposes is instead pumped into the stock market to fuel further multiple expansion.

You wind up with nothing but Amazons. Corporations worth hundreds of billions that continue to lose money every year. A vampire sucking the life out of the economy, leaving corpses everywhere you look.

GeoffreyT's picture

Multiple expansion does not affect economic growth one iota, because money is not 'pumped into' the stock market - it passes through the stock market, moving from the bank account of the buyer, to the account of the seller.

This is also why 'cash on the sidelines' is such a fucking stupid thing to say (not that you said it, but it's implied in what you did say): only TV finance 'journalists' would utter it, because to say such a thing requires that the speaker is completely ignorant of how markets work.

 

What happens after a stock transation depends on the relative preferences of the buyer and seller: the stock buyer thinks that this is the highest-expected-value deployment of his funds, so he's not building anything 'tangible'... but the seller is freeing up cash, and it follows that the seller will use the cash for some combination of consumption and investment (including - possibly - buying other, different stocks... in which case, the cash he uses to pay for the stocks goes into someone else's account).

Money is literally never 'pumped into' the stock market - even IPOs and other capital raisings shift money from the account of the buyer, to that of the company doing the IPO or the raising.

The stock market is a 'secondary' market: literally all a market does, is allow 'tatonnement' - that is, it allows people who disagree on the value of uncertain things to acquire [dispose of] things they think are worth more than [less than] the current price.

That is literally what markets do, and the stock market is no exception: the stock market involves tatonnement over the future free cash flows from a company's activities (it doesn't matter what participants think it involves, and it doesn't matter if some heavy-handed participant tries to force temporary mispricing - the market will always eventually do what it actually does).

 

 

Secondary markets cause absolutely no drag on economic productivity, even during times of speculative 'excess': secondary markets shift value from one set of hands to another. That shift usually has three attributes: wealth shifts

  • from weakhands to strong hands;
  • from low-information hands to high[er]-information hands; and
  • from outside the top wealth decile to inside it.

It's stupidly easy to make the case that secondary markets actually contribute to economic growth, since even quasi-efficient price discovery adds a fortiori to overall economic efficiency. That's just mathematics: a reduction in any constraint causes a new [local] optimum that is strictly no worse than the prior [local] optimum; the new optimum will only be equal to the old optimum if the constraint is meaningless... and barriers to price discovery are informational constraints.

Plus, participation in equity markets is voluntary - if individuals did not expect markets to deliver results that were in line with their objectives, they would deploy their funds somewhere else. Their expectations may not be realised, but that's the result of bad expectations formation processes, not the market itself.

 

You and I may not like the 'manipulation' of asset prices; we may detest the fact that monetary policy throughout the world is configured in such a way that it penalises savers and the prudent (by making them move out the risk spectrum if they want yield), and rewards profligacy.

We might also dislike - immensely- the fact that favoured sets of cronies get the newly-created money first - and that the monetary transmission mechanism involves deploying that new money to purchase financial assets (which puts upward pressure on asset prices, some of which is outright manipulation).

Those are political problems, caused by political agents and their apparatchiks and cronies: it is hostile to productivity (because it's based on rent-extraction and is 'subsidised' rather than 'optimising' behaviour), but it is not the 'fault' of equity markets.

What's more important though, is that political acts and rent-seeking can and do detract from productivity by skewing capital-creation decisions, and the skew results in permanently-lower productivity growth: that's also not the market's fault.

 

Markets are one of the most brilliant of all human tools: politics (and religion), by contrast, were invented by fraudsters when human economic systems developed the capacity to produce a surplus.

Markets are mechanisms that enable value-creation by people with the capacity and willingness to save and take risks; politics is a set of mechanisms (always coercive and/or fraudulent) that enable surplus-extraction by unproductive parasites.

mary mary's picture

Thanks.  Well put.  But "a man just has to know his own limitations".  Leverage is not for me.

khaproperty's picture

BUY THE FUCKING DIP is not any solution to make money. BUT if there is a centralbank or some of it practicing QE and ZIRP same time you can make what you want - most important is you buy.

jdow's picture

I have a question for the Moderator and everyone posting here.

How can the Options Markets remain solvent, when all the downside risks are removed by Central Bankers through manipulation?  I've noticed that puts are drying up almost across the board.  Most traders are going to just abandon the Options Market altogether.

How can the Option makers remain solvent?

 

dark pools of soros's picture

Moderator??   we dont need no stinkn moderators

GeoffreyT's picture

As I'm certain you already know, 'downside risks' have not been removed: they've been shifted temporally.

 

As to writer and market-maker solvency...

Option market makers remain solvent by having bid-ask spreads wider than the Grand Canyon. There will also nearly-always be a supply thanks to writers of covered options, since a decent proportion of options OI is used for hedging.

At expiration, a covered call strategy cannot cost the writer money in excess of the increase in value of the underlying stock: in fact, strictly speaking, time premium (plus volatility premium, if any) mean that a covered call strategy adds to gains and ameliorates losses, since at all points between purchase and expiration, an option buyer pays a premium over and above S-X ('intrinsic' value).

If the call finishes in the money, the writer effectively 'loses' S-X because he has to hand over stock trading at S, and receive X... but he has had gains equal to the rise in the stock price (assuming a rising market) less any dividends (assuming that the stock did not 'carry' its dividend when it went ex-div: that's also more common in rising markets), plus the time premium.

 

The reason puts are scarcer in a rising market is a largely a demand-side phenomenon: hedging demand from the short side shrinks (since most shorts are trend-followers rather than contrarians), and speculative demand also dries up (for the same reason). Puts are generally a thinner market anyhow, and they wind up 'mispriced' at market extremes (as do all prices, but more so for puts at upside extremes: time premia never disappear entirely, but it gets close at times).

 

The options market is a suckers' game because of the massive, manipulated spreads, but once in a blue moon I will buy a OLOOM (one-level out of the money) option if the market is too far from the 'max pain' level for the primary index. This only works during expiration week, and is only just better than a coin toss - but the payoffs are so asymmetric that it will make money with a 30% hit-rate.

That said: the last time I bought an option was probably in late Feb 2009.

I use options data all the time though - to track

  • put-call ratios in high-? stocks to 'confirm' broader price- and index-based indications of overbought (and oversold) conditions; and
  • the 'max pain' option level for index options - the price level that drives the largest value of OI to zero at expiration - that is a good guide to the 'target' price for indexes on expiration day.

I am a contrarian to my core, but I need several things to line up - on several timescales - before I change my bias, and several other things to line up on short timescales before I pull the trigger on an individual trade. The best fut-opts based indicators are PCR relative to historical range, and the DBR ('Dumb Bull Ratio') from the CoT: the DBR is the ratio of long non-reportable OI to total non-reportable OI for major indexes. (Non-reportables are the mugs who crowd trades - almost always on the wrong side of the boat - at market extremes. We're not quite there yet.)

Mtnrunnr's picture

This is a winning trade every time. I'm glad you posted that pic, I was wondering exactly how much money you'd make being a moron.