The next week

Friday Aug 1, 2014:
Getting a sharp recovery at the opening bell that is still going fast 15 minutes later up 35 million and rising. Here is close to the opening bell.

SPX 1929.77... Oh the irony. The Great Crash of 1929. The lowest price was 1925.41 so far at the open. At 10, a half hour in, we are at 1936.1 but with weakened strength to the recovery... a pause.

We can do the analysis of why the hedge broke a bit to the downside over the weekend, but in a word, Volatility. Yet VIX is only in the 14's. It has had a couple times over the last year in the 20's. At 10:30, we are into the choppy action. By 11:30 VIX is up to near 17. Still lot's of room to go there.

See how I suck in all the Conventional wisdom yet? Hint: It is Mo Money than
 you can guess: I am a bad girl! Worse than that... The Boss is fighting lyme disease. He is winning with his pets... A couple deer and their mother. He sure knows the other  side of our trades more than they know themselves! The Boss STOLE my stash!!!! Worse yet .... I am his hedged .... I May not have sucked you in, but Ya gotta pay his piper. I am not gonna quit. He is best Dad EVAH!

Every time I have a loss, rarely, I just go to The Boss, my Dad. He had the foresight to save and hedge my shenanigans. They say his IQ is 154 but that is classified because he works in Energy. You cannot tell the speculators where he has been. But he has pretty much been everywhere.

Sorry boss has me busy on secret project. That's hedging inside the hot pocket.

It will not let me show you. That means that I am It now. SEC Rules Apply. Total at risk: 20 Trillion

Total Invested: 0 Trillion

In My defense, it is my Boss.

He just poured me some of his Sammy Hagar Anejo. It must be good. How Good? Just imagine the other side of all your trades.

While we wait for my aide of the hedge to close, that is like the best Tequila EVAH! It tastes like Lymes and salt too.
I feels butthurt an' itchy now. He used us. That bastard. At least I have a paycheck.

Truth be told I would have quit long ago if he wasn't such a good fuck, and a wise old sage.

it won't  let me show U. I suspect the SEC but The Boss crushed us
The Boss says if they stole Veritas from him, who is really Veritas?

If they jacked that, who knows? You always let the camera man down first DUHHHH!


Thursday Update:
My Sunday sunburnt butt is itchy as we wait for a down opening with SPX/ES losing overnight 1965-1951... 14 handles. Hope that I applied enough Bear Repellant Mace. We will see.

A hard down opening for sure. That is the trouble with bears. You have to spray them, not yourself, when they show up. But I imagine it could be ten times worse for those who are unhedged. Actually now could be a fantastic time to shop, or we can wait it out. We have about 1,334 of dry powder after all. Volatility S+P and Gold Miners in Value, but are we too tired to do anything about it, being all itched out. Spreads could just be wider from increased volatility which won't or hasn't lasted all that long before.

Finally! We've been waiting it out till Lunchtime, and Our First Big Down Day in several Months! Now is this the opportunity of a lifetime or the beginning of the end? So much volatility to micro analyse. I should scratch my butt and file my nails a bit more though. It is a bad time of day for a correction.

The Boss just sent me the weirdest txt. He said the deer are eating his Apple Trees. I guess they are Herbivores. But he also said something about an old medicine man telling him that nothing runs like a deer! Well, at least they don't seem to have a problem with Lyme Disease and Borelliosis. People? Not So Much. I wonder if they have a problem with sunburn? Ticks think people taste like candy because they eat sugar too. Bugs also prefer non smokers. But I digress... <puffs cigar>

Remember how we told you all about Interest Rates? Sure spooked all the rocket scientists because they knew about this dagger hanging over our head for a long time. Add Hedgers to the Interest Rate Haters. XIV would see the thirties again if not the teens! Ouch! Janet dropped the bomb they will say. Rho Indeed.

SPX has printed 1937.46. That is sort of like the Great Depression sequel annualized back when Hitler was working on improving his Joo Roaster, but of course Rule 2 is no matter how bad things get they can always get worse. This time, Hamas will reinvent the skid with similar results. Caveat Emptor.

The Close is Ugly, but we'll make it back in spades. Tomorrow Black Friday.

<3

Wednesday Update: 

It is actually after Tuesday Close, but I will start early. Some wannabe hedger blew up one of our underlying Hedge Pairs after hours, Peas be On Him. It will rectify at opening, or ProShares goes Plowshares. It could happen and now they have the white hot spotlight. The Arbitrators will eat them for breakfast otherwise or either way. Hedging has that built in safety factor. We already turfed them over a week ago. Remember that big Brazil hedge blow up back when they were all fartin' rainbows and we caught 'em with Cupcakes? They got walloped to all zeroes by expiration and simply added more to our already enormous take. I could show you how, but been there, done that, tossed the T Shirt. That's SOOOO last month.

There is also a link describing what I said again  last week. A faithful reader hedger or friend of same got bumped on CNBC talking about EMP risk from a Carrington Event solar flare or other. You heard it here first though as we have it included in our Hedge Risk Discussion about overall Model Risk Etc. The original source was Nat Geo and NASA via Weather Network. Washington Post was the latest reminder.

The astonishing opening was getting back the other side of the Volatility hedges. After a half hour trading, the Volatility hedges have reversed their imbalance completely and switched sides for a whopping bank windfall in commish trading fat future spreads to back the options. Trust me you don't want to see the Sausage Factory... Here... Have another Nuts an' Guts Hot Dog special! Would you like extra Anus an' Sauerkraut on that one? Hey don't complain! Most people would give their Eye Teeth to have an eyeball on their's! I know the cow gave its Eye an' Gums.

Stuff like this happens every FOMC Meeting day it seems before Janet gives her Free Hot Dogs out at the Fair.

After 1 hour of trading, gave back a little, but there is a Fed Press Conference in 4 hours. More craziness to follow.

Here it is pre Janet at 2:30:

We are still sitting on Hands. My hands are sore and my butt is sunburned from skinny dipping in river. Owww!

Wednesday 3 PM after the Fed and nothing has changed. Still SOH. We may get the spreads back as closing comes up. The Boss gave me a bag of alcohol crushed ice snow and my butt is *Heavenly* right now...

It's wrap. Tomorrow watch interest rates be all the rage. How low can u go? Who0ps! Gotta crik in my back on that last limbo... Help me I can't get up!

<3

Tuesday Update:
We have a slight positive opening on the SPX around 1979. Hedges holding weak, slightly up. Too early to say, but they have already called for a choppy "inside" type of day. After about 5 minutes...

An Inside day means it will be bound within a flat defined range. They have no idea really so everybody hedges this mess, the most hated Inflation Rally in history. I added the inflation part since they can't bring themselves to state the Fed Up obvious of printing a boatload of cushy government union pension cheques. At least the sedentary lifestyle will whack them quick after an early retirement, or the shock and stress of a real job like this will off 'em desperately needing more more more.

Hardly a half hour in we have been up 5 million and back. Looks like they did not learn their lesson yesterday, as all that volatility friction adds up on our bottom line when they have to pay the piper at the closing bell. Smart traders holding a winning position may get thrown a bone for once here, but it all may get walloped due to the FOMC Meeting starting this AM. Consumer confidence came in positive so far. 2000 here we come maybe until the reality shock, but so far it went Doji. That means split. But it actually floated up from there. A 45 minute up date now...

Almost 10 million up. I guess they have capitulated to try to stop beating themselves up with Financials down again for the second day. That is the whole Aikido thing I have been talking about. GS is calling for 3 months of chop with high likelyhood of a correction or the like. Some traders vehemently disagree. We don't care as long as they keep duking it out. The Fed will keep 'em going. The certainty of uncertainty, our chosen topic, remains unchallenged by all but the most narcissistic schmucks.

This is where we should consider all these people with their charts leading even more blissful Past Performance disciples. They are a market force to be reckoned with, much like a kindergarten armed with bazookas. God bless them. They are a never ending source of market action (see above.) All the weight of those trades is what moves the markets as they battle it out, Chart A vs. Chart B vs. Chart C. What is even better is that they are so blissful about it, and that they will fight it out as witnessed by none less than Goldman Sachs calling market direction. Channels, Trendlines, Pivots, and More (shhhh! Fib Retracements)! crap than you can shake a stick at. Yesterday they actually had something useful which was a discussion of Option Pricing related to liquidity although it was all pretty much old hat. Watch those spreads!

Every month we wait with baited breath for the FOMC and the presser tomorrow afternoon. It is because it's always a little bit volatile around Fed announcements. Who knows where the charters will try to take the markets? At that time we could try to take advantage of that volatility and later volatility to put on some September positions for a little long term hedging. Last month we went to zero or close to demonstrate what happens with expiring ITM options. Subsequently it is hard to invest this large a sum all at once. We still maintain that maximum option decay is in the last 28 or so days, but 90 days is the hump on that volatility surface. 52 days approaching 45 would be safe too on the downside of the parabola, so in the upcoming week we may open some September things earlier on Volatility bumps.

I had a Twitter. Haven't been back. Probably dead now. They have earnings coming. Who cares?; They suck and pretty much always will. People will make and lose fortunes trading a nothing. Meanwhile through lunch the herd has been racking the SPX. Look at the predictability of that! It's a gong show.

It seems that they select Fed Chairs these day for blandness. Hard to read, yet people will still try. Alan Greenspan was a wild man in comparison.The broken clocks will trumpet their accuracy on the Witching Hours twice daily. Same old.

So what happened? Idiot in Chief spoke to the loving masses. 10 minutes to the closing Bell.

Now the settlement. I suspect LIBOR bagging but we will see. They outted themselves. Did Little 'Ol Me do that? Doubt it. Yesterday didn't work so well so they have resorted to after hours. Karma is a bitch, yet we ae still up. See you tomorrow to watch the action after the Mother of All Vol dropouts crushed SVXY by spreading options to where you could move a house through them. Wait for the long side to play catchup.

Monday Update:

After being through a weekend of blatant Hamas and Russian propaganda and Facebook posts of the same, back to the real world. Perhaps all those people should go to Donetsk-Kiev and Jerusalem to give us something a little less one sided that we can get wrapped around. As it stands, their ignorance is the only astonishing thing I see. What do we care though? ES futures are down at about 1970 on Sunday evening.

Here it is July 28-Aug 1, 2014. Lots of Fed stuff like FOMC Meeting starting Tuesday that will shake the markets. Jobless claims Thursday. The total reflects a weekend of time decay. SPX opened down in the 1979 range.

 

Home sales came in down 1.1 M versus +0.8 expected. Hedges held with Volatility 1+2 taking a hit as SPX transits the +/- mean. Financials also breaking negative. At about 10:10, there is bearish sentiment overall. S+P hedges down slightly as the market continues a rush to the exits. Dallas Fed Report coming at 10:30 may mean we are heading for a rare down day and an opportunity to add some position on the lower hedges. We did add some to Volatility 1, S+P 3, and Financials on what was the apparent bottom around 10:30.

Gold and Silver Miners have been carrying the flock while all that happened. We are back on a rough up trend through SPX 1972 after a rough hour of mixed trading. They later got hit a bit, but have returned, since taking the whole hedge portfolio lower over lunch. At 2 PM, there is a bit of a wobble to the uptrend. Thinkorswim Swimlessons has given us hedgers a nod regarding Who are those buyers contrary to the market? We effective own a bit of both sides of course to dilute it down to a simple balanced smooth battle where time is on our side.

 Now approaching the final hour...

So there is the whole day to now. Hedges back to where we started carrying out the daily dip buying. That curve has been rough on the financials as VIX peaked earlier in the day printing a VVIX of 83.7. They rattle the hedge cage with volatility that way but we have held out as the vega balance gets tested.

At the bell there was an inexplicable sharp rise as all their chickens came home to roost trying to fight the hedges. FAIL! As they tried to balance the close, it all seemed to come home to us. We will have to see if they ever try that dumb move again, and get doubly walloped due to the huge leveraged effect of all the hedgers across all the underlying assets. Now we wait for 15 minutes while it all finalizes.

A rough day, but we stuck to our guns through imbalances and volatility storms. It looks like most of the other hedgers did too, and likely took advantage of the multiple dips we saw as well further confounding the American Greed contingent that tries to guess direction or steal because they are too perplexed to figure out how to hedge it. 

<3

Not Quite Expired Yet

Friday Update: Just when you thought geopolitical things couldn't get any worse, we find out that we could get hit by a Solar Flare. There is a 12% chance in the next 10 years. Of course, online trading would be out, not to mention telephone communications, so something to think about as an outside risk. What will your last position be?

At option expiration, the sweet spot is about S+P 1990 from our hedges. It is a wide target from 1980 to 2000 due to uncertainty. That is the projection from the option market, and simply their best guess as it stands now. Today, the sweet spot would be about 2004, but we sit at 1979 or so SPX. Again, that is just their best guess at evaluating options, the result of us putting on options at the best market spots at the moment with reasonable spreads.

That is a snap at the Closing Bell. It may settle more, but seems stable for now. I added more Gold Miners Hedges earlier as they were down a bit today, plus sold some VIX calls. It will settle for 15 minutes usually after the Closing Bell.

So that is how it eventually ended up.


Thursday Update:

Silver and Junior Gold Miners down a bit to start with S+P. Added to Silver and Jr. Miners before 10. Miners have a volatility premium, or high time value for money, that we try to capitalise on.

We have closed down slightly after all that rebalancing. You win some, you lose some. It's not all wine and roses after all.


Wednesday Update:

A look at the Volatility Surface might be in order.

This is a typical implied volatility surface from the Volatility Smile Wiki. What we are trying to do is take advantage of the steep drop in value as DTM Days to Maturity approaches 0 or expiry. We concentrate on the last month, but it shows the last 3 months or 90 days generally start the decline in at the money options from the maximum premium. The back wall is Volatility. Relative changes in Delta, or Gamma, are less effective in the last month. Here's Today's Close.

Tuesday Update:

I guess Top Posting is the default for a blog, whereby the latest addition is added to the top. I guess the main thing is that I am free to write about how this goes instead of sitting transfixed with the laptop on the Loo waiting like a cat to pounce on a mouse. There is a lot to be said for boring in this financial world. Make a little money all the time is better than wins and losses any day of the week, and even if your ratio is better than the standard 1 out of 3.

However, can't get too complacent like a bird. We still have to pay attention to the flying, sensing that any down draft is an opportunity in waiting because that means there is also an up draft somewhere nearby, and we might want to load up to take advantage of the coming up current. We may flap our wings once to move laterally, but the rest is gliding. Today it looks like the S+P will open up in a few minutes.

The world is falling apart and stocks are still rising. Do people finally understand that Inflation makes the bottom line grow fonder? I doubt it. It can be our little secret like a clandestine Pachyderm in a Pinto.

Here we are after 15 minutes, showing a little skin as it were. Down a bit. We use the aileron feathers to bank into the wind with a slight readjustment. Coming up to the 11 o'clock time frame, we have recovered slightly after dipping as low as 2 meg down. That is to be expected when these positions are so young. As they age, they will fly better we hope. We had to kick them out of the nest early, but we are like their doting mother birds swooping in underneath to catch them if they fall. Their siblings have already caught the drift.

Maybe we are just a little batty, and these kids are like flying vermin, but they are Our vermin. Now the ES is making new highs and SPX hitting 1986.24, but there may be a correction in store... Nope. Until 2 PM, it was unsettled sideways.

Now some of you may be thinking there is a Condor Option Spread analogy, but no. Condors use two longs and two shorts at 4 different adjacent strikes. Butterfly may be better but same deal; two longs two shorts. There is also a "Batman" spread but this is not that. Option Spreads also aim to hedge, or limit, risk while profiting from time. They may be better for you, but this is fine for me. Everybody always tells me how great their system is. They haven't got back to me since my Bottom Line was deemed too injurious to their insensibilities.

I wonder how they have fared over that chart? There appears to be a sharp sell-off on ES after the bell. And that is just another predictably unpredictable day. We have 24 more including another settlement day. Just like Hamsters, there will be another batch next month, and they grow exponentially towards birth, in the last 28 days. Gestation period: 18-21 days Litter size: 1-14 (average 4) Weaning age: 3-4 weeks. Flying Squirrels are 40 days. Bats are longer; 50-240 days. We will skip the eating our young part at that point though as we have the wherewithal to knit booties and school uniforms for all of them. As you remember, the last week before expiration is the biggest growth in our Happy little Squirrelly-Hamster-Bat home here. Another analogy would be Wine Making, but while being rewarding, it's not as much fun as this.

The other thing I always wonder about is what happens during that 15 minutes after the bell until they get the final answer for the day? I have written it off to balancing the books, but it is something more than just that when they can't decide on an answer between 1.5 and 2.5. Maybe you know.

<3

Monday Update:

All of our In The Money expired positions have now been exercised, before the Market Open, and we have choices. We can clear them or hold them. In the case of HTB Short Positions, we would have to pay interest on them for as long as we held them.

The top is Friday Close while the bottom is Monday Pre-Open after the ITM options have been exercised. We intentionally left the ITM positions to see what would happen. We also appear to have made about $14 M and change before anything starts.

A few minutes after the open it is still moving, but we captured it. We have to decide before market close today, 72 hours after expiry, what we want to do about all those shares.

Well it took us a little while, but we have squared up. Note the P/L YTD is up from hedges we had the foresight to add Friday Afternoon. It is 10:18 Eastern. We are down 48M on the P/L Open because some hedges have ITM options open as far out as December and September Expiration, but the winning sides outweigh them substantially. After cleaning out the old ITM hedge positions, we are here at about 11:15 NY...

The rest of the day was boring. At the close, the top line shows what we got from cleaning up the assignments.

<3

So where is the "Reset?"

Today, Sunday July 20, 2014 is supposed to be the Global Economic Reset. 100th Anniversary of the First World War too it turns out. The French Finance minister suggested it while making chit chat at an Economic Forum. Well, I am waiting still. Stuff is still working like it always did AFAIK.

Don't they know we just had one with the June Quad Witch? It seems to me there is a market reset every solstice and equinox, 4 times a year. Clean slate. But that is so old school, you know. There is in effect a reset every option expiration now that we have enough computer power to zero it in 15 minutes. They likely did that so they can flee and be nowhere near the Great Unwashed this afternoon. I assume it must be later today before Singapore starts trading at 6 Eastern, 5 Chicago. I expect ES will flatline. That will be a head turner. Stay tuned for the graph.

This of course follows the hundreds of Dooms Days that have passed, let alone the entire month of July and some act of congress on July 1. Market seems as screwy as it always was. I guess I will update this as necessary if the internet keeps working. Your faithful financial scribe, <3.

Update: 5:30 Central Time: No flatline. ES is same as usual, opening down a bit, and now recovering to 1970.50-ish. Somebody tell those Reset morons if they haven't got the memo yet.

A fine mess

Well, now that Vladimir Putin has brilliantly <cough!> set back Russian Relations with the West nearly a century, what to do next?

You probably shouldn't get a Nobel Peace Prize first, then set out to bungle foreign policy for 5 years straight, leading to conflicts everywhere that were previously stabilized. You have the Secret Service to fudge your golf scorecard, but horiffic gaffes by The Faithful Teleprompter Stuffing Crew litter YouTube in their enormity. Want another full on war? Just send John Kerry or Hillary to forge A Peace. They are distinguished Peace in Our Time tub thumpers, Resetting in ignorant abandon like a cowboy hedge funder before that one bad trade. Since the Reset, Russia repeated KAL-007 and more. Neville Chamberlain would be thankful someone will take all the heat off him for all eternity after that little Hitler "glitch."

My Boss would like to have a hedge solution, but he says everyone is running for the exits. The only other side of the War trade everywhere used to be the United States, and if they aren't in it any more, any kid with less than a firecracker can touch off major conflict anywhere now. Israel is the last man standing on the counter side and their partners have partied away all the reserves. Who knows what new sort of terror awaits the new fat, soft target rich, and lazy US now until the next 911 lands on their doorstep?

Democrat backed peace initiatives have all led to the greatest wars in history. Wilson, FDR, Truman, Johnson, Carter, Clinton's Iraq Liberation Act of 1998, and now The Red Line. They'll pass the buck on to the next in line no matter what side of the aisle. Past performance may be no guarantee of future results unless hedged, but they have yanked the hedge and it is only a matter of time before it fails with a 99.6 % certainty. Peace sells, but nobody is buying anymore. Sound familiar? Recreating a sure fire recipe for disaster is a sign of insanity, but the doctors have all left the asylum. Prepare for that next Day that will live in infamy. When the only solution is to hedge it, or die, Prepare to die because you went all in on the losing side of the trade, and millions of dissenters be damned. Someone else's problem until then, right?

July Expiration Week

Friday, July 18, 2014

It becomes apparent that the model approximation breaks down as expiration approaches towards the end of July Options today. ES futures have risen 10 handles after trading in a 16 handle ($) range overnight. The model using CBOE's chosen software says we are down $179 Million before options even open. It also shows that options won't expire for three days too. What do you want to bet it isn't even close? I suppose we will see. That is what we have been waiting for; exposing the nature of model projection inaccuracies.

In related news, there is lots of market chatter about the alleged shooting down of the passenger jet over Eastern Ukraine by Russian rebels. I suppose Russia is reporting that Ukrainians shot it down as well. The black box and the missile launcher have been reportedly taken to Moscow for doctoring safekeeping. Stay tuned for the latest manufactured news. I guess they have a lot invested in Expiration Day as well.

It takes over 5 minutes to settle down, but the model was only off by about $200 million bucks. Back to the drawing board for starters, but isn't that a little too convenient? I'm sure the margin call mail robots were working overtime. You can see why CBOE likes it, warts an' all. Now it's up nearly $30 million.

After 1/2 hour, natural gas grabbed over 20 million in a second. It was up 33 million. I guess others are recreating Amaranth with their modelling reality. That company was behind the largest ($6.6-9 Billion) hedge blow-up in history amid charges of conspiring to fix natural gas prices.

1 hour in and the natural gas grab has almost been recovered. Basically avoid those natural gas hedges as there is corruption there that they are still trying to sort out even 9 years after the fact. You could say our whole hedge strategy this month was simply counterbalancing that. Skid them, Brazilians, Chinese, with a few others, and the numbers look much better. Of course, you don't know until you hold these things open for the duration.

It's almost lunchtime in NY... no, wait it's only 11? Let's see how things are going before they let the interns loose for their 2 hour lunch...

Silver, Emerging, and Financials are down with Natural Flatulence in balance broken correlation (GASL and GASX) but still down under the weight of their own skimming and apparent $50 million per month ETF management fee on $167 million margin. Do they have gas in Denmark? It is advertised as having no odour with a tracer chemical responsible for the rotten smell. Whatever. We have discovered that something else is rotten there too. No reason to call Guinness yet though. The futures market is already under restrictions as the wheels are falling off in the glut. They are the weakest link... Goodbye!

Now it is lunch for the rest of us. The Red Liner in Chief is giving a toughly worded speech. They better pull out of the Ukraine or he'll.... he'll Give Another Speech!

Meanwhile in sticks and stones world, things keep rolling on square wheels. Usually by now I would have looked at rolling all this stuff to August Expiration to take advantage of higher volatility, and that is how we got all these numbers in the first place. However, if a strategy is market neutral and hedged, that would be speculative. Many hedges have fallen because of speculation by hedgers. I guess you could construe a rolling strategy to minimise roll losses as speculation. We should be able to jump on anywhere or any time. If we let these expire without a roll, we will lose a weekend of time decay for sure though. Instead we can load up with dry powder to overlap it.

OK, put August hedge starts on for S+P 1+2, Volatility 1+2, Silver, Gold Miners, as they were the best of breed and correlated well so far. Oil, UnNatural Gas, Bonds, China, Brazil, Emerging and Russia have been fired for poor performance overall, which is a pity since they are vying to be the New Superpower. Super Corruption too; they'll do just fine. Instead of speeches, their actions speak louder than words. That is a double good because I doubt that they are very articulate. It is 13:45 in Old New York, the former king of the hill:

Still piling on hedges in the Volatility 1+2, S+P 1+2. In an hour and a half it will theoretically be all cash otherwise. Great for a nice feeling, but lousy for taxes. We will get it all; invested again over the next month I imagine. It says I made 77 orders and have 77 fills so far.  I just put them on at the default so we don't speculate the roll.

It cost us, but all of our trades usually start off down as it must make up the spread and/or roll cost. That's the cost of doing bidness.

And that is a wrap! Next month, a new and improved version. I'd like to say Peace, but as everyone in the hedge world knows, it means you have to maintain both sides of the trade to make it work. <3

Thursday:

Off to a positive open. In only 2 hours of wild S+P action, after a precipitous drop, I took another snapshot. It shows the predicted larger effect as options near expiration in about 28 hours:

Much has been said about Maximum Pain at option expiration, but if we are on the opposite side, will it be maximum pleasure as our Fo0lean Algebra predicts, or will they also exact pain from themselves? I guess we will have to see.

Yesterday they said we should get out of all this Financial Engineering "Stuff." I hate to break it to them, but it is YOU genius's (genii?) that dealt this mess! Have a double helping of your own "Stuff!" lulz More perplexing, I know you will all be back next month for another heapin' helpin' of your own "Hospitality!" Talk about sour grapes... and it is a long 35 day VIX cycle this time.

Financial Engineering won't cause the crisis any more than gasoline was involved in all car accidents, so it may have caused them. Really Bad Financial Engineering might have been involved too, but they don't make a distinction. It is just that they never asked me to mark the papers... until now. We gotta get rid of all this gasoline "Stuff." Fuel was involved in most train wrecks. People were too. Let's get rid o' people!

3 hours in and it is mixed on the S+P. It has been to 1981 and 1966 today so far. But I digress.  Russia tried getting rid of people. Didn't work. They're gonna try again; All Abooooard! Just leave all your Stuff with Uncle Vladimir first. And after that came reports they have shot down a passenger jet in east Ukraine. But the hedge holds. 5 hours in...

Now there is another clawback happening as close approaches on our hedges with Gold Miners, Volatility 2, Nat Gas, Bonds, Russia and Small Caps giving back a large chunk. I guess it is related to Ukraine tensions, but who knows? Where we stand, the S+P has given back a week of gains, and VVIX is near 90. By usual standards, this would be a major correction, and we will have to see how the hedge holds up.

Volatility 1, Gold Miners, and Nat Gas have taken the largest hits. Volatility appears to be the hedging Achilles Heel as much of the day has been given back. S+P ranged 1982-1955.5 so 26.5 handles. That is a big range. We will be lucky to get anything out of that as there is blood on the carpet everywhere else. 17 minutes after the close and it is still settling out...

It had actually been negative, but they are still haggling it out. Maybe better (or worse) luck tomorrow. 30 million in an hour and a half doesn't seem that market neutral, but we have to hang in there. One day left, but try as they might, they aren't going to shake us. They tried to LTCM us. Fail! I see ES futures have recovered a bit. At expiration tomorrow, all expiring Greeks also go to zero or 1 depending if they are out of the money, or in. Let the chips fall where they may. All our options are Type "C," meaning cash settled. T'will be interesting. Looks like American Greed is on again... Why didn't they hedge?

<3

Wednesday:

We started with a precipitous drop on VIX SOQ day. It would have been a good time to get on board though. By lunch...

Maybe next month. Even though we did predict this on the weekend from the model forecast, maybe it is like a broken clock being correct twice a day. Hedges are not supposed to behave that wildly, but it is the uncertainty of the underlying option valuations as expiration approaches. It is also the reason they split VIX and other Option expiration dates apart.

It is also a source of market inefficiency, a constant source of income for our hedges against that. It is not like they are going to snap their fingers and cure that for now. After all, they have been advocating for more market efficiency since before the computer came on the scene.

So how's that for excitement? It doesn't get much better than this though, literally. Tomorrow, same Bat Time, same Bat Channel.

Tuesday:

Today is the current VIX Expiration Day and it opens down on our hedges as the current VIX opens at 11.48 or so. Silver, Russia, and Twenty Year bonds are up. Most hedges are down for once; maybe this is where most hedgers roll their options forward. We want to watch how the options perform between the two expiration dates; Tuesday and Friday. So we are going to hold on to our horses, which of course includes our audience at the NSA https://www.youtube.com/watch?v=RuhmajHiexo . They sure don't want any links to Bill Still and Bill Binney, or from anywhere for that matter!

Janet Yellen is giving a press conference, or should I say the Politicians are grandstanding at the FOMC. That is always good for some excitement in the otherwise pretty dull hedge world. First there was the Greenspan Put, then the Bernanke Put, and now the Yellen Put quenching the flames of Volatility. Schumer of all people shows his understanding of Economics 101 by blathering about Inflation and Full Employment. The Market nosedives. The hedgers cheer safely out of earshot in boiler rooms somewhere.

Janet mentioned Student Loan debt. Says the kids can't afford a home, and they are having trouble picking schools. Here's a hint, kids: Don't pick the ones where the teachers spend the entire time telling you it is someone else's fault to deflect the blame. The shifty weasel job market is crowded already.

Looks like the Fed chit chat has helped out by lunchtime. The VVIX is up around 81 for rolling out those July VIX contracts. There is no August though, only showing September VIX. Another all too "Convenient" bug? Janet shocked 'em saying that the Market is Overvalued. Well, duh, Ya Think? I guess the assembled Genii had to be told about the Elephant in the Phone Booth. For me the real knee slapper was that Inflation is only 1.78%. It could be since they do not account for food and fuel, both jumping more like 20% recently.

It is almost like you need a hedge fund to keep abreast of inflation. Oh well, here is the close after it has settled down...

I added another S+P 500 hedge using 2x underlying ETF's with an August expiration. There were no August VIX options to add, although there are VXQ4 futures that they are based on. Ya win some, ya lose some. Just win more! lulz

But anyways, we're just killing time until the NSA and IRS implode on each other. It's like one now has the tyrant government's former most powerful weapon blackmailed over a couple incredibly sto0pid e-mails. If we don't hear about 'em soon, that means the biggest blackmailer at NSA is in charge. They've already had Teleprompturd by the sideburns ever since he insisted on keeping his Blackberry.

Monday:

From http://www.amazon.ca/Getting-Job-Hedge-Funds-Inside/dp/047022648X

Monday morning has seen an astonishing opening, but let's see what happens as we continue our LTCM trainwreck simulation, albeit with different underlying securities that simply did not exist in 1998. We are not alone; JWM tried a re-do, but finally succumbed in July 2009. Think we have Natural Gas troubles, ever hear of Amaranth? One loss can wreck your whole great record.

We have realized a weekend of Theta gains and a nearly ten point SPX climb at the open. We do not want an LTCM ending of course. Like LTCM, we do have our eggs in a lot of baskets. It's not like there is a book to follow such as , "Highly Leveraged Hedge Funds for Dummies." But several things are different now. We have better correlated pairs, more liquidity, and better efficiency of markets with widespread electronic trading and clearing. We don't have the Asian Financial crisis component, but there may be a Russian component as it looks like they also want to reinvent the square wheel. We don't want to scare you; Rather; you should be assured that we even know about all these different kinds of Hedge Fund disasters.

China, Russia, Emerging, Silver, and Financials were down, so we took advantage to rebalance them for the drift of the underlying ratio. If the pairs are balanced, a loss points to an Arbitrage opportunity as we expect the pairs to snap back to balance. We expect that such a move will revert to center eventually with a higher degree of certainty than is normal. Hey, it's better than nothing! How did it work out for you the last time you walloped the S+P 500? lulz Of course Theta keeps ticking throughout, and becomes a larger component as first VIX Expires tomorrow for July, then July Options for our securities on Friday.

By Mid Day Monday, it has recovered slightly from recoiling to $30M. Gold Miners were a large part of this from their decline and rebalance for Drift on Friday. By no means are we out of the woods yet. We are using about $2.073 B margin as opposed to $4 B of LTCM when it was clobbered. We have to rebalance because our underlying securities Ratio is not a constant as is assumed by lesser practitioners, and there is no way to really automate that in our crude model.

And now the close. Remember VIX Expiration tomorrow at the close with the SOQ Wednesday Open.There is a larger effect as we approach expiration, and from what we see so far, it has gone our way. Not every day one can get 2.267% off the stack and live to tell the tale, and as long as it is bigger than our typical downsides. Plus we had a weekend to add to it.