Deflationary collapse and the Reflation Cycle to Come.

[stuckmojo]

6 minutes ago, winkie said:

From what I see there is excess stock in many retail places.......now is the time to buy what you need for the next few years at below discount prices, they can't in some cases give it away.

Yes but it's not discounted enough yet

[winkie]

12 minutes ago, stuckmojo said:

Yes but it's not discounted enough yet

....buy quality and what you definitely know will need now, what is still decent and useful but still asking too much play the waiting game......all good things come to those who wait.....no rush.

[stuckmojo]

2 minutes ago, winkie said:

....buy quality and what you definitely know will need now, what is still decent and useful but still asking too much play the waiting game......all good things come to those who wait.....no rush.

Agreed. I'm doing just that at the minute with things like tools and some high quality shoes and other bits. 

[Sancho Panza]

2 hours ago, Ash4781 said:

New Look numbers look dreadful . Heavy discounting , pretax loss.  I’ll have a look later at detail . Obviously bigger things going on with financial markets today!

http://www.telegraph.co.uk/business/2018/02/06/new-look-losses-continue-retailer-attempts-turnaround/

'On a like-for-like basis, stripping out shops open less than a year, group sales fell 10.6pc and by a similar amount in the UK. 

The company made a pre-tax loss of £123.5m compared to a profit of £29.2m in the same period the year before.

Sales on New Look’s website also plummeted 15pc, but it had some cheer from selling its products on third-party e-commerce sites, where sales rose 21.9pc'

 

So a £123mn loss with £1bn in debt,on turnover of £1.3bn or so.Impressive.

[zugzwang]

It's like the Midas Plague. An indigestible excess of everything that's literally choking the world to death with oversupply.

Well done, central bankers.

[Sancho Panza]

1 minute ago, zugzwang said:

It's like the Midas Plague. An indigestible excess of everything that's literally choking the world to death with oversupply.

Well done, central bankers.

You don't want people feeling left out do you?

[Sancho Panza]

Hattip:someone on another thread who highlighted this.

 

https://www.benzinga.com/news/18/02/11141389/credit-suisse-will-liquidate-the-xiv-short-term-volatility-etn

'Credit Suisse Group AG (ADR) CS 2.86% said Tuesday it will be liquidating one of its most popular volatility trading instruments after Monday’s wild session.

Acceleration Event

Credit Suisse said an “acceleration event” triggered the liquidation of its Credit Suisse AG – VelocityShares Daily Inverse VIX Short Term ETN NASDAQXIV. The XIV is designed to deliver the inverse daily return of the CBOE Volatility Index (VIX). On Monday, the intraday value of the XIV dropped to 20 percent of its previous day’s closing value during the mid-day market crash.

One of the primary concerns about these types of funds is what the impact could be for large hedge funds who own the XIV and other inverse volatility investments if they're unable to easily exit their positions during times of extreme volatility, especially during the illiquid after-hours sessions. Another obvious problem is what would become of the XIV is the VIX were to gain 100 percent or more in a single day.'

 

[ManVsRecession]

25 minutes ago, Sancho Panza said:

Hattip:someone on another thread who highlighted this.

One of the primary concerns about these types of funds is what the impact could be for large hedge funds who own the XIV and other inverse volatility investments if they're unable to easily exit their positions during times of extreme volatility, especially during the illiquid after-hours sessions. Another obvious problem is what would become of the XIV is the VIX were to gain 100 percent or more in a single day.'

 

SVXY, another short VIX ETF blew up yesterday too. 

https://www.marketwatch.com/story/volatility-armageddon-cratered-one-of-wall-streets-most-popular-trades-2018-02-05

Both these ETFs have been artificially depressing options Implied Volatility, making options cheaper than they should be given the market risk. No doubt some insiders made a killing buying long puts before the crash.

Now, with these ETFs gone, options premiums should rise to more sensible levels for the next couple of years. I'm not sure how this will affect the prices of the underlying instruments, but it does increase costs and risk for investors wanting to hedge..

Long VIX ETFs should be safe from blowing up.. though they'll still lose you money unless you're very lucky with your timing.

[Errol]

1 hour ago, Sancho Panza said:

So a £123mn loss with £1bn in debt,on turnover of £1.3bn or so.Impressive.

Completely insane. 

[leonardratso]

1 hour ago, Errol said:

Completely insane. 

sounds good to me, im in (for a dollar).

[narco]

I really do not understand what is going on with this VIX business. 

I  can vaguely remember back in 2008 that the VIX was wheeled out a few times as a useful guage of fear in the market. Roll on 10 years and we've got idiots speculating on this synthetic index with leverage. 

Why the hell would anyone short something like this at an all time low value? Also why the hell are people buying or selling "volatility" like it's actually an asset class? 

Seriously, this entire system is built upon one fresh air scam after another. Crypos are pretty much just the same..

Edited February 6, 2018 by narco

[kibuc]

20 minutes ago, narco said:

I really do not understand what is going on with this  

Why the hell would anyone short something like this at an all time low value? Also why the hell are people buying or selling "volatility" like it's actually an asset class? 

Why are people buying or selling an outcome of a sport event at the bookies, or result of an undeterministic physics experiment at the roulette table? Some people simply have to gamble, on anything, and it's even better if you can call yourself a trader or an investor instead of a gambler.

[Talking Monkey]

On ‎05‎/‎02‎/‎2018 at 8:48 PM, durhamborn said:

The dollar hit my range dead on into the 88s (86 restated) a year later and thats when we started to see the market crack,very happy with that.Really pleased to see the GDXJ hold up in this as well.However these falls might be bought yet as i fully expect a massive bear trap before the main event.Dont want a collapse too quickly as i want these gold miners to run).

 

 

 

 

 

DB in terms of bear trap what levels you reckon.

[pmgdawau]

1 hour ago, narco said:

I really do not understand what is going on with this VIX business. 

I  can vaguely remember back in 2008 that the VIX was wheeled out a few times as a useful guage of fear in the market. Roll on 10 years and we've got idiots speculating on this synthetic index with leverage. 

Why the hell would anyone short something like this at an all time low value? Also why the hell are people buying or selling "volatility" like it's actually an asset class? 

Seriously, this entire system is built upon one fresh air scam after another. Crypos are pretty much just the same..

to get yield, according to this chap

https://www.zerohedge.com/news/2018-02-06/experts-walkthrough-exactly-how-xiv-ripping-peoples-faces

[zugzwang]

1 hour ago, kibuc said:

Why are people buying or selling an outcome of a sport event at the bookies, or result of an undeterministic physics experiment at the roulette table? Some people simply have to gamble, on anything, and it's even better if you can call yourself a trader or an investor instead of a gambler.

Roulette is a lot more predictable than you'd imagine. Much more predictable than the stockmarket.

https://en.wikipedia.org/wiki/The_Eudaemonic_Pie

 

 

[Sancho Panza]

5 hours ago, ManVsRecession said:

SVXY, another short VIX ETF blew up yesterday too. 

https://www.marketwatch.com/story/volatility-armageddon-cratered-one-of-wall-streets-most-popular-trades-2018-02-05

Both these ETFs have been artificially depressing options Implied Volatility, making options cheaper than they should be given the market risk. No doubt some insiders made a killing buying long puts before the crash.

Now, with these ETFs gone, options premiums should rise to more sensible levels for the next couple of years. I'm not sure how this will affect the prices of the underlying instruments, but it does increase costs and risk for investors wanting to hedge..

Long VIX ETFs should be safe from blowing up.. though they'll still lose you money unless you're very lucky with your timing.

Shaun Richards covered this today

https://notayesmanseconomics.wordpress.com/2018/02/06/the-connections-between-risk-human-psychology-volatility-and-the-vix/

'Imagine you have a geared position in the Vix index as you look at the chart below.

Hello darkness my old friend… ?$VIX pic.twitter.com/9KnHSRBKM5

— Sven Henrich (@NorthmanTrader) February 5, 2018

Of course we have seen “carry trades” both implode and explode in the currency markets before. The new situation is explained well below.

It took 6 years for $XIV to go from $11 to $144 and one day for it to implode to zero – 6 years of picking up pennies in front of a bulldozer wiped away in 1 session – can happen to the market, too.

— Quoth the Raven (@QTRResearch) February 6, 2018'

[Sancho Panza]

2 hours ago, narco said:

I really do not understand what is going on with this VIX business. 

I  can vaguely remember back in 2008 that the VIX was wheeled out a few times as a useful guage of fear in the market. Roll on 10 years and we've got idiots speculating on this synthetic index with leverage. 

Why the hell would anyone short something like this at an all time low value? Also why the hell are people buying or selling "volatility" like it's actually an asset class? 

Seriously, this entire system is built upon one fresh air scam after another. Crypos are pretty much just the same..

I think it was Minsky who reasoned that if if stability lasted long enough,it became inherently unstable.

I'll await more educated minds.

[Viceroy]

2 hours ago, zugzwang said:

Roulette is a lot more predictable than you'd imagine. Much more predictable than the stockmarket.

https://en.wikipedia.org/wiki/The_Eudaemonic_Pie

 

 

https://www.armstrongeconomics.com/uncategorized/it-it-alive/

"..Go to a casino and just watch a roulette table. In theory, every number has an equal chance of winning. But in reality, the numbers will be cyclical. Some numbers will never come up while others repeat. It does not matter what system you look at, it will always revert to a cyclical pattern. This is the secret of nature. Observe the roulette wheel closely. The reason the house changes dealers rotating them is because this changes the cycle on that table. The cycle is not YOUR luck that will emerge from a string of times you might gamble, The house cycle differs with each dealer and that is the key to running the casino. This is why the casino rotates dealers because they fall into cycles and like counting cards, with a keen eye and an understanding of complex cyclical systems, you can see the the patterns emerge. (for your information, if I go to a casino and play roulette, within 15 minutes they come and say they recognize me as a”player” and want my name; casino understand cycles).."

[ManVsRecession]

On 06/02/2018 at 8:21 PM, narco said:

Why the hell would anyone short something like this at an all time low value? Also why the hell are people buying or selling "volatility" like it's actually an asset class? 

Seriously, this entire system is built upon one fresh air scam after another. Crypos are pretty much just the same..

To try to explain for the benefit of anyone interested..

Long options are a useful way to hedge portfolios, lock in fixed prices for a period, or make limited risk speculative bets.  Short options traders and market makers take on the risk if they believe the market price for those options reflects the actual risk of large move, plus a little extra for profit. Options sellers are mostly large firms which make markets right across the options universe, arbitraging price/risk imbalances, so all the options are perfectly fairly priced given overall market risk.  And there are some small players like me who take on a diversity of very small positions.

As a seller of options, you end up with an overall short volatility position.. that is, if people suddenly expect a large move, the options sellers will naturally increase their prices to account for this expectation, meaning the short options positions they already have start losing money. In the case of panic, options premiums can rapidly double or triple, causing big loses, so the market makers need a hedge.  Small players like me can hedge with long options further out, but for a big player that suddenly finds itself short a few thousand put options after a hedge fund trade, a quicker, cheaper way to hedge in the near term is needed, which is where the VIX comes in.

The VIX is a calculated measure of the market's expectation of large moves, as implied by the prices of all these options ( Hence the term, Implied Volatility). VIX futures are cash settled contracts based on the VIX. There are also options on the VIX, so a big firm can quickly set up a suitable hedging position with a combination of VIX futures and options. There are also long VIX ETFs, with options markets, so at a smaller scale I can do something similar, or speculate on a short term rise in the VIX.

All this combines to form a really efficient, convenient market that serves everybody's needs well, spreading risk and providing the opportunities or certainly that people need.

So it's not that volatility trading is in itself bad, but it needs to be approached carefully.  Sensible options trading is about constantly putting on and managing positions, making adjustments etc to try to keep as neutral as possible, while still being exposed to enough risk to profit.

E.g. The other week, I decided there had to be a volatility spike soon, but also thought the market could carry on rising for another month or two. I was already short quite a few put and call options, so I wanted to put on a pure long volatility trade to hedge these.  

So, I sold(shorted) a 12-13 call spread,- betting VIX would stay below 12, but limiting my loss over 13. With the money I collected for this, I bought a 15-18(long) call spread. Taken together I was betting VIX would either slowly sink, or spike up, but not rise slowly.   If it sank, I'd have made £20 ish. If VIX had stayed the same or  risen but just a little, I'd have lost maybe £100, and if it went above 18 ish, my max profit was about £200. When VIX spiked, I closed out the whole position, with around £150 profit, which helped offset the small loss to my short stock options positions. ( caused by the same increase in IV)

Where it goes wrong is when people use instruments designed for hedging, low risk mechanical trading or yield  enhancement, as leveraged investment products on their own. Such as shorting VIX futures or naked VIX call options without upside protection.  This is bound to blow up at some point. What's even worse is when such strategies are built into ETFs to be sold to the general public who don't understand how they work.

Why trade hedging instruments as speculative products? greed and complacency for some, or outright cynical rinsing of unsuspecting punters for others ( like the ETF providers) I guess.

Edited February 7, 2018 by ManVsRecession

[Democorruptcy]

35 minutes ago, ManVsRecession said:

E.g. The other week, I decided there had to be a volatility spike soon, but also thought the market could carry on rising for another month or two. I was already short quite a few put and call options, so I wanted to put on a pure long volatility trade to hedge these.  

So, I sold a 12-13 short call spread,- betting VIX would stay below 12, but limiting my loss over 13. With the money I collected for this, I bought a 15-18(?) long call spread. Taken together I was betting VIX would either slowly sink, or spike up, but not rise slowly.   If it sank, I'd have made £20 ish. If VIX had stayed the same or  risen but just a little, I'd have lost maybe £100, and if it went above 18 ish, my max profit was about £200. When VIX spiked, I closed out the whole position, with around £150 profit, which helped offset the small loss to my short stock options positions. 

 

I'm a bit confused by that last bit. When the VIX spiked wouldn't short positions be in profit as well or do you mean you sold short stock positions e.g. you were actually long?

[taderuk]

All seems overly complicated. Why not just spreadbet with stop-losses?

[ManVsRecession]

2 hours ago, Democorruptcy said:

I'm a bit confused by that last bit. When the VIX spiked wouldn't short positions be in profit as well or do you mean you sold short stock positions e.g. you were actually long?

I see the confusion.. By "short stock options positions", I mean I sell(short) calls and puts on various stocks and indices as my main way of making money. I'm not short the stock or index itself.  I'm generally betting the stock will stay within a range, between my short put to the downside, and short call to the upside.

However I will try to balance my positions and select strategies so overall I carry some "short delta", i.e. all other things being equal, I profit up to a point from the markets falling, which partly compensates for the increase in IV when the market falls.

Usually this is enough of a volatility hedge for me, but in this case I expected a largish spike in Vol, but didn't know when, so a specific VIX options trade suited me better. It was a one off really, rather than a regular trade I do.

 In this case my total VIX position consisted of a short call spread ( sell the lower 12 strike, buy the 13 strike - benefiting from a falling VIX) and a long call spread ( buy the 15, sell the 18, benefiting from a rising VIX ), so my overall VIX options position was kind of neutral at low  VIX levels, but become "longer" VIX as volatility increased.

Edited February 7, 2018 by ManVsRecession

[Sancho Panza]

3 hours ago, ManVsRecession said:

To try to explain for the benefit of anyone interested..

Long options are a useful way to hedge portfolios, lock in fixed prices for a period, or make limited risk speculative bets.  Short options traders and market makers take on the risk if they believe the market price for those options reflects the actual risk of large move, plus a little extra for profit. Options sellers are mostly large firms which make markets right across the options universe, arbitraging price/risk imbalances, so all the options are perfectly fairly priced given overall market risk.  And there are some small players like me who take on a diversity of very small positions.

As a seller of options, you end up with an overall short volatility position.. that is, if people suddenly expect a large move, the options sellers will naturally increase their prices to account for this expectation, meaning the short options positions they already have start losing money. In the case of panic, options premiums can rapidly double or triple, causing big loses, so the market makers need a hedge.  Small players like me can hedge with long options further out, but for a big player that suddenly finds itself short a few thousand put options after a hedge fund trade, a quicker, cheaper way to hedge in the near term is needed, which is where the VIX comes in.

The VIX is a calculated measure of the market's expectation of large moves, as implied by the prices of all these options ( Hence the term, Implied Volatility). VIX futures are cash settled contracts based on the VIX. There are also options on the VIX, so a big firm can quickly set up a suitable hedging position with a combination of VIX futures and options. There are also long VIX ETFs, with options markets, so at a smaller scale I can do something similar, or speculate on a short term rise in the VIX.

All this combines to form a really efficient, convenient market that serves everybody's needs well, spreading risk and providing the opportunities or certainly that people need.

 

That was a fascinating insight,so thank you.I normally only concern myself with the area of options that I play ie single stock.

You can see how these markets develop over time to serve an apparent need but I think there's a real risk that sometimes they sow the seeds of serious instability as books are run on the basis of the upside/downside cover that's in them and the implicit assumption that the counterparty can deliver.As with Lehman, that assumption becomes the mother of all f*** ups.

As (we've) discussed earlier in the thread I like to carry an annual insurance policy to hedge risk as per your outline, particularly if I'm long anything that makes me nervous eg retailers/banks. I've often pondered whether I'll be able to collect on my insurance policy given it's often set at the margins and if those margins are being hit,then likely somethings big has happened.

It's quite mind blowing thinking of the myriad risks that the big players are balancing (or not ) at any one time.

Following on from that,I do have a question for you if you have the time as a 'for instance' if you will.On the Liffe, someone has written 100 June 1200 puts on Easyjet .Have you any idea how they'd balance that trade on their books to allow a small profit? Or would this possibly be a chunkyish stand alone trade?

http://data.theice.com/ViewData/EndOfDay/LdnOptions.aspx

 

[ManVsRecession]

2 hours ago, Sancho Panza said:

That was a fascinating insight,so thank you.I normally only concern myself with the area of options that I play ie single stock.

You can see how these markets develop over time to serve an apparent need but I think there's a real risk that sometimes they sow the seeds of serious instability as books are run on the basis of the upside/downside cover that's in them and the implicit assumption that the counterparty can deliver.As with Lehman, that assumption becomes the mother of all f*** ups.

You're welcome. I learn a lot about macro trends from you guys so I thought I'd try to share what I know too. 

Counter party risk is one reason everyone trades US exchange-listed options.  They're all guaranteed by the Options Clearing Corporation, which in itself is backed up by the Fed, so there is effectively no counter party risk at all.  Obviously this doesn't apply to the OTC swaps, options and other derivatives that sunk Lehman and others.

2 hours ago, Sancho Panza said:

As (we've) discussed earlier in the thread I like to carry an annual insurance policy to hedge risk as per your outline, particularly if I'm long anything that makes me nervous eg retailers/banks. I've often pondered whether I'll be able to collect on my insurance policy given it's often set at the margins and if those margins are being hit,then likely somethings big has happened.

It's quite mind blowing thinking of the myriad risks that the big players are balancing (or not ) at any one time.

This is where a slightly more sophisticated hedging plan can help.  You just need to decide how much protection you want, and what you're prepared to give up for that protection.  A popular strategy is the collar, whereby you sell a call above the market, and buy a put below.. choosing the closest put you can find for money you received for the call. You effectively have a "free" put option, in exchange for some potential upside. If the stock goes higher your upside is limited by the short call, and your stock could be "called away" from you at that price, but you can avoid this by simply buying it back and selling another one for the subsequent month. ( rolling the position.).  

Or you could buy put spreads instead of puts, which allow you to put your protection closer to the current price, but only offer protection up to a certain point. 

Or you could sell some of your stock to reduce your risk, and then sell puts below the market, which give you the chance to get back in at a lower price ( if stock is put to you ), and keep the put premium too. So many ways to do things.. options are basically financial lego, and once you know how to read the probabilities from the options data, it's easy to construct exactly the protection you want.

2 hours ago, Sancho Panza said:

It's quite mind blowing thinking of the myriad risks that the big players are balancing (or not ) at any one time.

Following on from that,I do have a question for you if you have the time as a 'for instance' if you will.On the Liffe, someone has written 100 June 1200 puts on Easyjet .Have you any idea how they'd balance that trade on their books to allow a small profit? Or would this possibly be a chunkyish stand alone trade?

http://data.theice.com/ViewData/EndOfDay/LdnOptions.aspx

 

I see the 100 puts at 1250, as well as the 50 puts at 1350.  

That could be a 2:1 ratio spread.. long 50x 1350's and short 100x 1250s. The greater number of 1250s mean they more than cover the cost of the 1350s, and the position would profit most if the price closed at 1250 in June, so the 1250s expired worthless.  That's one possibility anyway. A ratio spread has a high probability of making a little money, a small chance of a big profit , and smallish chance of a moderately large loss beyond a certain point. If this is a ratio spread, it would turn unprofitable below 1150.

Or they may actually want  Easyjet at 1250 in which case the ratio spread is just an attempt to make some money on the way there.

If that's the case, the Market Maker that took the other side of the 1250s.. i.e. is now long 100x 1250 puts they don't actually want, could have turned it's position into a calendar by selling matching put options for a nearer month. I see there are 100 open interest in Feb at the 1300 strike.. they could be it, forming a diagonal calendar. This in itself wouldn't be likely to profit the MM, but by rolling the short 1300s to March, then April, then May, they'll collect some extra premium each time.. which combined with the large potential profits below 1200 ish, might make it statistically a good trade.

 If this is the case,  you'll see those 100 Feb 1300s roll over to March at some point in the next week or so.

It's possible they or someone else also sold the 50x1350s, in which case they may buy other options to limit their risk, or if they happen to have a short EasyJet position anyway, they might not need to since if the puts come into the money and are exercised, being "put" the stock simply closes out their short stock position for a profit.

It's guesswork though really, trying to figure out trades from Open Interest.. there are so many possible combinations of players and trades.

Personally I wouldn't try to hedge Easyjet with UK options. The spreads are wide, there's no liquidity, and sellers have no motivation to meet you in the middle. I'd probably use Delta Airlines (DAL) or another US carrier that correlates closely to Easyjet, and then look at the charts to figure out equivalent price targets and sizes. 

Obviously that won't cover you for Easyjet specific risks, so might not be what you need.

Edited February 7, 2018 by ManVsRecession

[nayth]

back to 'normal' then?