This page has been archived and commenting is disabled.

A Week Later, The Risk Spread Compresses - Profits Booked

Tyler Durden's picture




 

Back on Friday, August 26, we indicated that the stock market had gotten overly exuberant and that the "fair value" based on the now traditional Risk Context fair value regression analysis performed by Capital Context indicated a fair value for ES of about 15 points lower. Well, it took a while, but finally the spread has not only compressed, but in fact has the ES trading below its corresponding long leg. For all those who lasted out this trade which has a 100% success rate to date courtesy of idiot algos and convictionless momo chasers, congratulations.

From August 26:

And today:

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 09/05/2011 - 10:10 | 1634241 NoBull1994
NoBull1994's picture

that thing widened big time before compressing.  ouch.

Mon, 09/05/2011 - 10:14 | 1634263 virgule
virgule's picture

Yeap, need balls that big to be trading in this kind of wind...

Mon, 09/05/2011 - 10:34 | 1634344 centerline
centerline's picture

This one was worth it just for the sake that ZH called so many times before.

Mon, 09/05/2011 - 10:35 | 1634349 RSloane
RSloane's picture

Yup.

Mon, 09/05/2011 - 11:06 | 1634479 hedgeless_horseman
hedgeless_horseman's picture

Paid vacation. 

Mon, 09/05/2011 - 11:22 | 1634530 LawsofPhysics
LawsofPhysics's picture

Having fun playing along, but I don't know if my blood pressure can keep taking this especially since I have to keep asking what the various indices mean, just glad I bought more gold and silver in the recent dip.  Should I stop hedging at this point and just be playing risk indices?  It seems like a by-product of the algo trading is a "free-inductive-decay-like" patterns showing up in many indices (similar to the mathmatical model for decay that you get when you pluck a guitar string).  So remind me, what do these indices represent again?

Mon, 09/05/2011 - 10:41 | 1634369 Don Birnam
Don Birnam's picture

Organic balls taking the other side of the trade against Skynet ? Hasta la vista, baby. Kiss them good-bye. Fight algo with algo. Nanomorph "balls" of mimetic poly-alloy will ensure the trading edge.

http://upload.wikimedia.org/wikipedia/en/f/fc/T-1000_002.png

Mon, 09/05/2011 - 10:21 | 1634287 FUN160
FUN160's picture

If I'm reading the chart right, they put the trade on at +15 and it widened to over 60 before coming all the way back in to parity. Nice trade, but ouch is right on the intermediate pain.

I'm reminded of the John Maynard Keynes classic that "Markets can remain irrational longer than you can remain solvent."

Mon, 09/05/2011 - 15:19 | 1635495 dcb
dcb's picture

it is called a short squeeze. then rebuy shorts!!!!!!

Mon, 09/05/2011 - 10:13 | 1634259 LongBallsShortBrains
LongBallsShortBrains's picture

Don't get your ding-a-ling caught in that!!

Mon, 09/05/2011 - 10:13 | 1634260 Gandalf6900
Gandalf6900's picture

can we hope europe will abandon the useless Euro and go back to reality or do we seriously have to relinquish all hope for a better society rid of banksters and corrupt politicians, no pensions, no real currencies, only debt and crying babies!!!

Mon, 09/05/2011 - 10:44 | 1634382 irishlink
irishlink's picture

No ... We have about 3 talking heads  promoting closer integration, United states of Europe etc. etc and they have the nerve to suggest that the citizens will understand  ..lol

Mon, 09/05/2011 - 10:20 | 1634261 scratch_and_sniff
scratch_and_sniff's picture

Yeah, anyone stuck with that one probably needs a bucket of Regain...and a course of hormone replacement therapy.

Mon, 09/05/2011 - 10:14 | 1634264 IMA5U
IMA5U's picture

zero hedge is like porn for the bears

 

they just can't get enuff

Mon, 09/05/2011 - 10:20 | 1634281 UGrev
UGrev's picture

In this giant shit storm of an economy coupled with a completely rigged market, I don't think it's porn...it's reality.

Mon, 09/05/2011 - 10:28 | 1634311 Cursive
Cursive's picture

@UGrev

Only people who've bought the Ponzi could view ZH as bear porn.  ZH is an expose of the central banker Ponzi scheme mixed with the best elements of "Saturday Night Live" and "Jackass".  ZH is a voice of Reality mocking our collective Ignorance and Supplication to pathological Greed.

Mon, 09/05/2011 - 10:47 | 1634398 Fish Gone Bad
Fish Gone Bad's picture

It looks like the term "bear porn" set off a few sensitive people.  Zero Hedge is the only place the public can find "bad news", and lots of it, when it is happening.  I find all the rainbows and unicorn news on CNBC absolutely criminal/reprehensible.  That bank apologist Cramer is a real manipulative tool.

Mon, 09/05/2011 - 10:39 | 1634363 snowball777
snowball777's picture

And gay porn is like ZH for bulls.

Mon, 09/05/2011 - 10:59 | 1634447 rubyruffruff
rubyruffruff's picture

zh might have a bearish lilt......but if would b so kind as 2 demonstrate in bullet points all the good news circling the globe i will be happy to push in lost of euro/dollar/assorted peso's into global equities......p.s. central bank market humping will not be an acceptable bullish indicator....ty

Mon, 09/05/2011 - 11:13 | 1634508 brandy night rocks
brandy night rocks's picture

zero hedge is like porn for the bears

 

That money you gave me when I sold you the triple-levered Russell @ 860 a couple months ago wanted me to tell you hi

Mon, 09/05/2011 - 10:14 | 1634265 pendragon
pendragon's picture

good thing zh operates accrual accounting. the running mtm on this baby would have been a tad scary

Mon, 09/05/2011 - 10:26 | 1634306 Tyler Durden
Tyler Durden's picture

No country for small children... or old men who answer to risk "supervisors"

Mon, 09/05/2011 - 10:33 | 1634337 Cursive
Cursive's picture

@TD

Anyone without balls clanging around their ankles should definitely stay on the sidelines.  My only concern with being short here is the counterparty risk.  It's predetermined that this bitch is going down (interspersed with some huge short covering rallies between here and the bottom), but will anyone be there to pay for closing the borrow?

Mon, 09/05/2011 - 10:31 | 1634320 ISEEIT
ISEEIT's picture

You guys obviously should charge for this. I get it that you clearly run this site for a higher purpose than fiat accumulation, and at the same time my inner capitalist feels badly that so much value is provided at no cost.

Ah well, you have become a market mover now and alas no doubt do profit.

Fine work. Very fine work.

(thanks for the retard enabling spell check too).

Mon, 09/05/2011 - 10:50 | 1634408 Fish Gone Bad
Fish Gone Bad's picture

Zero Hedge a market mover?  I think not. 

Mon, 09/05/2011 - 11:40 | 1634575 Placerville
Placerville's picture

This site is a WEALTH of information and keeps the true market(s) reality in focus.

The info and commentary are VERY MUCH appreciated.

Thank you Tyler.

 

Mon, 09/05/2011 - 10:32 | 1634328 Irish66
Irish66's picture

pension crises!

Mon, 09/05/2011 - 10:32 | 1634331 RobotTrader
RobotTrader's picture

Spot gold back over $1,900

Mon, 09/05/2011 - 10:33 | 1634336 YesWeKahn
YesWeKahn's picture

time to buy stocks?

Mon, 09/05/2011 - 10:34 | 1634340 RobotTrader
RobotTrader's picture

Uh-Oh, PPT just bought futures.  Look at 'em run!

Mon, 09/05/2011 - 10:36 | 1634356 Flounder
Flounder's picture

Italy 10 yr spread is only about 20 points away from previous financial crisis high.

 

http://www.bloomberg.com/apps/quote?ticker=.IT10:IND

 

Mon, 09/05/2011 - 10:37 | 1634359 ISEEIT
ISEEIT's picture

Just cover. It's going down. September will be epic. The swans are tired.

Mon, 09/05/2011 - 10:48 | 1634404 X.inf.capt
X.inf.capt's picture

BRING IT!

Mon, 09/05/2011 - 10:51 | 1634411 mspgrandi
mspgrandi's picture

I may have missed a few lessons here.

what is the .context custom index made of? thx

Mon, 09/05/2011 - 12:37 | 1634783 FUN160
FUN160's picture

what is the .context custom index made of? thx

Snakes and snails and puppy dog tails.

Mon, 09/05/2011 - 11:09 | 1634494 Iranian Dictator
Iranian Dictator's picture

I'm calling shenanigans on this one. While technically it did finially compress. Anyone who trades the ES and has any disicpline would never hold a short and let it go 50 points against them. This risk spread is usually spot on, but I'm calling BS this time.

Mon, 09/05/2011 - 12:49 | 1634825 B-rock
B-rock's picture

Options dude. Options.

Mon, 09/05/2011 - 11:54 | 1634635 zerohandle
zerohandle's picture

Should we expect the risk spread to stay diverged for longer periods in the future? 

Mon, 09/05/2011 - 12:23 | 1634736 JW n FL
JW n FL's picture

 

 

100%? thats a little strong isnt it?

how about 99%.

Mon, 09/05/2011 - 12:35 | 1634779 FUN160
FUN160's picture

All of these risk spread trades have been winners, so yeah, 100%.

Mon, 09/05/2011 - 12:47 | 1634809 B-rock
B-rock's picture

Who is the dude with 1000 TZA shares?  Nice!

Mon, 09/05/2011 - 16:29 | 1635732 Soul Train
Soul Train's picture

ZH Tylers have more brains and balls than those f**king elitists and bedmate banksters on the Street.

Proof positive.

Now let's see how the SEC buffons handle their new HFT homework assignment, and what they plan to  meaningfullly do about it. (if anything).

The US Fed, all their institutions together with their EU cronies won't be able to put Humpty together again.

TG for gold and silver. Keep it physical. Every lit bit helps squeeze the bastards/

 

Do NOT follow this link or you will be banned from the site!