One Bored Trader Finds More Ways To Get Into Trouble

Tyler Durden's picture

Authored by Kevin Muir via The Macro Tourist blog,

Another day, and another steady grind higher in US stock markets.

In all my years trading, I can’t recall a non-summer or non-holiday period that has been as boring as the past couple of weeks. I mean, B-O-R-I-N-G. The ironic part of this snoozefest? There has actually been a fair bit of new information for the stock market to digest. Whether it is the recent uptick in wage inflation, or Trumpster’s “we will totally destroy” North Korean rhetoric, it’s not like the world has suddenly become less volatile. Yet day after day, tiny little stock market dips are bought, and we steadily rally, often closing up small. This is a trader’s ordeal. And it’s especially difficult for put-owning-bears like myself. Low-volatility-grind-highers are Amityville Horror type nightmares for me.

When will this end? Or is this trading’s new reality? Could it really be as simple as waiting for the 3 handle morning dip in the spooz, buying it with both fists, and then waiting for the end of day ramp?

Well, I can’t say for sure when it will end, but rest assured, it will. And when it does, it will catch a lot of traders off guard (pro tip - with the declining volatility, many traders are increasing position sizes, but be careful - when it turns, that increased leverage will bite back.)

Yet at the risk of making an even greater fool of myself, here is an idea for potential timing.

Too often, traders assume the centre of the universe is New York. Yeah, maybe some think it’s London, but it’s one or the other. Yet I contend that often the driving force behind markets comes from Beijing.

Remember the 2008 Great Financial Crisis? Most assume the market bottomed on the passing of the TARP bill. The market didn’t actually bottom until China came in with their fiscal stimulus. More often than not, China’s policy changes are what drives world asset prices.

Since this summer, I have argued that Chinese government officials will do everything in their power to ensure the upcoming Communist Party Congress flows smoothly. In May, when Moody’s downgraded China, I cautioned that the bears were getting way ahead of themselves - (China Downgrade- Buy the News?). Back then, the hedgies were all beared up on China’s prospects. Now, with the meeting just days ahead of us, most of them can see nothing but clear sailing.

Next week, China sits down to “re-elect” their leaders.

Xi will continue to lead, but make no mistake - this is an important event and he wants to ensure there are no errors or embarassments. There is little chance that China will conduct any sort of monetary or fiscal policy changes that will upset markets until this meeting is complete. It just ain’t going to happen.

In fact, they will do everything they can to “protect the quote.” Traders that have sat at a desk long enough will know what I am talking about. Often clients, or even dealer based traders with large positions, will defend a price level because they want the asset in which they have a position to not move. If they are long, they can keep the price from rising by peeling some off, and if there is some selling, they can defend the quote by buying more. They just want it to settle down.

I feel that is what is happening with China right now. They just want to get through the next couple of weeks without prices moving too much. Prices have already been goosed higher, and now it is merely a matter of keeping the quote up here.

You might feel that theory is full of shit, that’s your prerogative. But I think China affects markets way more than most financial pundits admit. The Chinese Communist Party Meeting starts October 18th and runs for a full week. If I am correct, that means the real market correction might still be a couple of weeks away.

I dialed the S&P 500 option chain, and the great thing is there is now a full array of weekly options. There is even a series that expires on October 25th, the last day of the plenum. The 2525 put is trading for a stupid 8% vol which works out to $4.90. One month later, the November 24th 2525 put is trading at a slightly more elevated 8.25% vol, which works out to $17.10. So if you agree with me that China will keep this market up here until after their big shingding, then buying the November put and selling the October one to earn some premium in the meantime might be something to look at. But be careful, it would be just like me to mess my market top call by getting cute and trying also to pick the timing. Talk about an arrogant idiot. Breaking the cardinal rule of forecasting - give a direction or a time, but never both!

*  *  *

ERIS at Interactive Brokers

A few months back, I wrote a couple of pieces about ERIS Swap Futures - As Cool as Carl and A Better Way to Short the Bond Market. At the time, the ERIS Swap Futures were not being offered by Interactive Brokers. Well, good news! Geoffrey from ERIS Exchange sent me a note yesterday to let us all know that IB is now offering their swap futures.

That’s just what I need - more ways to get into trouble…

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agstacks's picture

SNB and BOJ have "cash on the sidelines".  We're going full on Zimbabwae as they natiaonalize the S&P 500. 

lester1's picture

Yep. The stock market is not real. No way does it reflect economic reality. I'd rather buy and hold gold and Bitcoin. Be my own central bank.

lester1's picture

Good thing central banks have not figured out a way to manipulate Bitcoin.

Bitcoin is unstoppable and only going higher. It's a way to get your money out of the corrupt fiat system. Bitcoin is decentralized so no one owns it.

RockySpears's picture

OK,  Now you got it "out of the corrupt fiat system"  What you going to do?

  At some point it goes back into their system, and they may decide to charge you heavily to do that.  They may even decide you can't have their Fiat for you BC, because, well, they say so,

It's not as if you are in a Market or anything is it?



YUNOSELL's picture

Black Markets Matter


Bartertown -- Two men enter, one man leaves

2rigged2fail's picture

People are selling homes for bitcoin.  Or ride it up sell back to fiat take the worthless paper and buy gold / silver.  I'm not selling my BTC anytime soon.  

stacking12321's picture

that's the whole point, bitcoin is taking on a life of its own, developing its own ecosystem, it does NOT need to "go back into the system".

they want to "charge you heavily"? fuck em, let em try, we don't need their system any more, we don't need to accept their taxation and corruption and theft, we can keep out bitcoin and turn our backs on their broken system.

vasallo7g's picture

they can always buy high and sell low, and I got the feeling that they will do that before November.

They can not kill Bitcoin, and eventually they will be worth millions each, but the fed will kill the speculation part of it.

Squid Viscous's picture

China have big party then, Bang Ding OW!


got it... vewy simple

Swamp Yankee's picture

What?  Huh?  I fell asleep.

malek's picture

The 2008 Great Financial Crisis bottomed with the "relaxation" of accounting rules.

Neo Anderson's picture

There are numerous things people can "cite" as the bottom. He could be right and you could be (and are right) with the faking of the numbers. Also he talks about TARP not being the bottom..... TARP could have been the bottom. It took a quarter for the money to get through the system and create liquidity. People forget that we had a liquidity crisis where nobody had enough money to make anybody else whole. So they throw a bunch of future money at it as say "we now have liquidity". Which was total bullshit in my opinion.

The moral of my reply is while I upticked you for being right in you assertion.....there could be (and are) multiple reasons for the bottoming.

Neo Anderson's picture

1) To all the BitCoin people, while I regularly argue against VD and argue in favor of BitCoin.... I am not a stupid enough to not say what BitCoin really is. It is as fake or Ponzi as you get. Also if you think the banks, central banks, and even governments aren't working at mining the coins themselves with the most powerful computers in the world..... you are naive or just dumb.

I have Crypto Currencies, but I also have stocks, bonds, and precious metals.

2) The markets make a fool of everybody. I have seen so many bears be wrong, have seen so may bulls be wrong. And this happens in ANY MARKET. When I saw every other commercial be about gold and silver..... I knew the dumb money was coming in and time to go out. I sort of feel the same about BitCoin right now. I don't see that right now in the stock market. I am just stating my opinion on this.

3) As for the article is nice to see a financial article on ZeroHedge and not something about Weinstein or some other bullshit. I think he is going to be proven right as a bear, but it maybe longer than he thinks. The Chinese are going to try to "fake it till they make it" well beyond their Communist Congress meeting. I think it goes beyond 2018 in fact. That is not to say you might not have a 5 or 6% decline sometime...but it's not going to be the recessionary "doom" people think or want. And I think it is going to continue to burn the cash of a lot of shorts.

assistedliving's picture

this guess is as good as any i've read.  

what to do?  Own S&P, own PM's (stox n the glittery stuff itself)

dabble in ETH so u pay attention

30% Cash

look for R/E in hurrican hit areas?  any other ideas?

Kendle C's picture

Geoffrey from ERIS Exchange told me to buy as much "Webistics" as I could afford (a hot insider tip like this China spread being disclosed here). Believe me, Chris Moltisanti says it's going to the moon and he works there! It's time to play like the big boys.