In search of a "Team"

Most of you don't know me, so its probably safe to let you in on a little secret about landing one of those coveted 'trader interviews.'

Myself and roughly 8 other established traders have an interview network.

It serves two direct purposes. One, if you're not right for my shop but possibly a good fit for one of my 'friends' then I'll make sure you get an interview there {they do likewise}. Two, if you're a family friend or someone who is owed a favor, I can get you 1-2 guaranteed interviews. They may find something grand about your style, they may just say thanks, but either way you had an interview and gained experience. 

Due to this network, I've directly interviewed or informally charted no less than 175 individual traders looking for a change of scenery. Some of them are previous floor guys who are just now looking to make the jump upstairs. Some of them are people who heard only the positives of trading {make money, buy cars, get laid} and want a piece of the action. Some have been mathletes, so gifted in algorithmic equations they were qualified to teach collegiate courses. Some are college kids, lured by novels, movies, and rumors that this is the lifestyle of the baller. Of course, some are just traders that are unhappy with their current environment and long for a change

I have a special folder on my external hard drive. It is dedicated solely to cover letters, resumes and maybe a few notes. If you've sent one my way in the last 10 years, chances are that I have a copy of your "work life." As I began to pondering the topic of trading teamwork I decided to cruise through some old CVs and resume.docx to see if the pattern I felt was actually present in my notes or in their text. 

My hunch was that a majority of 'free agents' wanted to be part of a team. Almost none were looking solely for backing in order to trade. My hypothesis was proven correct, over and over and over again. An overwhelming number said virtually the same thing.

They all want to: 

• Be part of a team
• Learn from experienced traders
• Grow under the supervision of proven winners

I understand this is a slightly flawed sample. A statically significant number of the applicants were younger college graduates that had been in the workforce less than 3 years. Therefore, their desire to be under the tutelage of a mentor makes sense. But it intentionally looked up some of the more memorable 'older' traders that were also looking for a change. Though they weren't as many in number, their answers mimicked that of the masses. 

My problem with the "Team Quest" 

I'm a very extroverted guy. My Meyers Briggs is ENTJ and I'm all for social interaction. But, when trading, I prefer a dark room with just me and my monitors. I love to be able to feel the entire market, have a read on the pulse of what's going on. When someone else is in the my room, I feel like I'm there to instruct, manage and converse. Though I love to teach, that's not making my P&L soar. In fact, it distracts me, making it more difficult to see the little nuances that create the optimum chances for wealth and it actually causes me to be to angry at the other trader. All that to say, I've found it's hard to make a living when you're not get paid. I'm sure that some people love a large crowd, but group think hampers my decision making process.

That's not to say you can't be part of a team all working towards a common goal, but deep inside, there's only one voice you have to silence in order to make the hardest trades. For good traders, P&L favors those that attack on their own. The rewards of having no one to split your profits with are usually exponentially better than the alternative. But there's no safety net, protecting your ass when you get tagged for 50k. Your missing partner isn't there to shoulder the loss with you either. You're a solo rolo. Remember: It's just you for better or worse. 

So many traders just want to be given a working model or system and then trade it for me. That's absolutely stupid. Why should I:
A) Teach you to be my competitor
B) Reduce my profit margins
C) Give you the plan for what I love doing without you?

In 13 professional years, I've found trading to be a spiritual experience. For me, trading is a very similar to my walk with Christianity. I was born and raised in a devout family, my faith was always part of life. I was taught how to think about the world as it related to my faith. But it wasn't my faith. It was my parents'. When I did finally examine what I believed, I was kind of shocked to see that I didn't believe what I'd been told. So I crafted a relationship that I was confident in. One that was marked by the lessons I learned while wandering down life's paths. Similar to trading. I can teach you my strategies, I can give you my playbook, I can show you my results, I can instill trading confidence in you. But NONE of this is your own. That has to be created by you and your wanderings, so that you believe in it. That intimate understanding will be paramount on the day when you're down 35K before the opening bell and you need to trade for your paycheck.

Final Blip 

Have confidence in your trade. Be willing to stick your flag in the hill and say that you're going to be able to make it. There is a simple relief and satisfaction in knowing that no other person pays your mortgage. If you're a trader you should WANT to be on your own, a slave to no system other than your own determination.

~LH

ps If I do interview you formally, don't mention you want on my team, I'll ask you to leave

Race Report Boston 2013

My fourth installment of a full marathon was the granddaddy of them all, at least in running terms. Looking at it now, in the light of all the tragedy, makes 26.2 seem a little less significant, but nonetheless I still want to write about he race and not the horrific ending to the day.

My training partner's family lives in Harvard MA. in a beautiful log cabin on the rolling hills about 10 miles from Hopkinton. Not only is it a stunning home, but it allowed us quick and direct access to the starting line. In my opinion, this is marathoning done right.

We easily got through the runners' check point and on the bus to the staging grounds. The athletes' village is a set up on a beautiful high school campus about .5 miles from the starting line. The entire area is very well done. Even though there are plenty of porta-potties a bunch of people {including us} slipped into the surrounding thicket... more on that later. It was a very gorgeous morning and the brief walk to the start was already lined with a bunch of kids. Everyone passed out stuff, oranges, water, Vaseline, and band-aides... We loaded into our corrals. Time to run.

Miles 1-6

The start of the village

The first mile out of Hopkinton is a powerful decline. Though you may never notice it in a car, it is very apparent to anyone who is trying to control their speed. The natural urge is to open up and barrel down. Plenty of runners did. In hindsight I probably screwed this up. My plan was to keep it slightly above my goal pace, so instead of the 6:40 I wanted for total pace time, I shot for 6:55 in the first few mile. I figured this would give me enough in the tank to really take on the Newton Hills in miles 16-20. The net decline is broken up every so often with small, 50 ft rolling hills. They aren't really difficult and are very similar to what I'd been training on at the Argonne trail course. But the constant effort to control the decent really starts to wreck your quads. Also, during this portion of the race, many runners that started in front of me, peeled of the road and pee'd in the woods ~1.5 miles in. I'd estimate the number to be between 100-150. Reminds me of the pee stop that is under Wacker Drive after .25 miles of the Chicago marathon. All things considered {Boston Marathon, first timer, perfect day, & downhill start} my 10K time was 42:58 for a 6:52 pace, almost perfect to my plan.

Miles 7-15

This is where you begin to move from the countryside into the small towns that dot the path to Boston. The terrain is moderate with slight hills and still an overall net decline. This is the only part of the race where you can see 1-1.5 miles ahead of you because its flat and mostly straight. The crowds congregate in solid bunches. Looking back, I think its advantageous to take the water from the little mom and pop offerings because you don't have to fight the crowds or the cups. Groups of Harley bikers, drunk students, and BoSox fans scream as you make your way to mile 13 and the famous Wellesley Scream Tunnel.

Athlete's Village on the lawn of Hopkinton High School

The girls were loud and their signs were actually hilarious. "Kiss me, I'm Canadian." "Kiss me, I'm experienced" "Kiss me, I'm frustrated" "Kiss me, she'll kiss us both" The tunnel wasn't short either, I bet it went on for about a half a mile. Unfortunately, as my Harvard intern @HugeDitts had warned... "Women of Wellesly all kind of look like Hillary Clinton" He wasn't too far off. It did cost me a few seconds, but time well spent reading signs and really enjoying one of the great traditions. My half was a respectable 1:30:43 for an average of 6:54 however, that is almost 4 minutes slower than Chicago 2012. 

 

Miles 16-21

Cresting Heartbreak Hill

The Newton Hills loomed ahead. I had driven the course the day prior and knew to expect a very steep decline at 16 followed by 3 smallish hills and then the monstrous Heartbreak Hill at mile 20.5. My plan was to shorten my stride, get up the hills in the most efficient manor possible and then allow myself to open it up on the way down. Unfortunately, it turned out being too much and way too late. As I came down the hill at 16 I felt the weight of my legs steadily increasing. I understood that it was going to be a fight for the last 10 miles. My speeds began to decline. I was now right around 7:35 a mile. Hill #3 was done and the climb up Heartbreak was intense. I knew that my own little cheering section would be near the top. I also did some quick marathon math and knew that 3:10-3:15 would be a challenge. By the time I finally did ascend the half mile climb at Heartbreak, my quads were rubber. I'd lost all pep and there was virtually no fight left in my legs. I've done 22 and 24 miles runs faster than these 21 and felt completely fine...this was different. The saving grace was knowing that the last 4.2 miles was all downhill.

Miles 22-26.2

The downhill race to the finish wasn't as pretty as it sounds. Actually, it hurt a ton. My pace had been rocked to a very pedestrian 8:15 a mile. Legs were simply turning over because I refused to let them quit. I noticed the extreme density that lined the streets. Everyone was out. Boston College kids, random racing enthusiasts,

and countless children yelling and screaming to hurry up and finish. I finally saw the giant CITGO sign as I made my way past Fenway. At this point, I just wanted to be done. I was accepting any food, treat, water, or juice that was handed to me. I finally saw Hereford and happily made my right turn. It was a very slight climb and Boylston was just ahead. Made the left on Boylston and floored it. Then it hit me, "Holy crap...the finish is really far away." I tried to muster any amount of speed I could. Unfortunately, it was gone. I was spent. I saw the Boston Marathon flags over the finish...just, had, to, finish. My watch clicked off at 3:14:25...but also had registered 27.3 miles. Maybe that's why I hurt so badly.

The Chute and post race thoughts

The chute took forever. I had finished with a pretty large group of runners and maybe it was just the masses trying to get to a place where we could just sit. I remember asking the volunteers for Advil as the cramping was starting to get to me. I ran into my future training partner John, he had beaten me by about 15 secs, now we were grabbing our mylar blankets and heading to bag claim. It was probably another quarter mile until I found my partner Jeremy waiting for me at my bag bus. He'd run his best ever Boston in 2:57 only to be clipped at the line by his race partner Ryan by ~1 sec. We laughed, ate a bit and walked to the Red T. By 2:15 we were on the train and by 2:45 we were in the car at Alewife, heading back to the house.

I had run my slowest full ever. It was undoubtedly the hardest course I'd ever run and even though I had been diligent on the treadmill hills...they were really no comparison. The one thing I had not prepared for were the crushing downhill drafts. As much as I tried to keep it under control, I think it damaged my overall run. In the future, I think I have to be willing to go with it and cruise at a faster pace while worrying less. Maybe work on my tangential running {27.3 v 26.2}? Maybe more tempo training runs? Maybe its time to run 10 story parking garages? Its very tough being a flat runner and combating the hills of Boston. I own a BQ 3:03 from Chicago 2012, perhaps I use it to get back for the 118th running next April.

As far as the aftermath of what transpired near the 5 hour mark I am still in a state of surrealness. Yea, I was there and I've seen the videos, I ran the race but it doesn't seem real. I hurt for the people that were injured. I've yet to encounter a mean spirited runner in 2+ years on the road. To do this to such a peaceful, good-natured group of people is horrible. I'm thankful my racing crew, my friends, and most importantly my family were all spared both injury and the sights. If there is one thing to motivate me back to Boston, it is that I don't want my last one to be that one.

I tweeted this the other day, I stand by that this is a wonderful idea: 

"The 100th @bostonmarathon in '96 was open to everyone. 40K ran it. Next yr should again be open, qualifiers in front, free-for-all out back"

~LH

Where I landed

So, I mentioned that I left my previous trading home and struck out again to find my fortune. In some ways, I feel like a prospector heading west in the rush of '49...full of hope and anticipation, blind to the perils that may lie ahead and intensely focused on just one goal.

This isn't my first rodeo, I've moved or rebranded or regrouped at least 10 other times in the dozen years that I've spent in the financial markets. It is part of the game. Most contracts are a year long, they have a graduated payout that peaks as the contract expires. While I was writing this, I took the trip down memory lane and dug up a few statistics about my career path thus far.

• I've been fired 1 time, it was my first trading job. I learned that you don't trade against Goldman Sachs when they come in to buy a ridiculously 'over valued' put. 
• I've had a 12 positions ranging from clerk to junior trader to trader to partner to owner. The spectrum is pretty broad and the pay scale didn't always match the titles.
• Speaking net income, the smallest yearly total I've made since striking out on my own {circa 2003} is an abysmal AGI of $18,750. Ugh, that was a nasty stretch.
• I've traded the following: 
• Indexes
• SPX options/futures
• NDX options/futures
• Equity options in: 
• TYC
• BAC
• HOG
• KO
• CIT
• CPN
• QQQ
• Yield Curve 
• ZB options/futures
• ZN options/futures
• ZF options/futures
• Commodities
• Nat Gas options/futures
• Copper futures
• Corn options/futures
• Wheat futures
•  Soybeans futures
• I've had 3 partners, all three have eventually quit. 2 have left the industry completely
• I've been with 5 different clearing houses
• Paid one fine for $30,000.00

Seems pretty tame when you write it all down and piece it all back together. But that's my story and I'm stuck with it. My goal has always been the same. Provide for my family and my lifestyle while doing something that I really love. I've often said, "I would have no idea how to assimilate into the corporate world." This career in trading is a dead end. Once you really taste it, really taste it...there is nothing like it.

Back to spreaders. Updates and predictions next post. Also, a pretty decent set of calls happened HERE.

~LH

Where the Summer Went

It's been a long time since I got around to writing. It's not that I've not wanted too...simply put, I haven't had the desire for a strange set of circumstances.

In terms of an update, here is a quick recap of the last few months.

• The spring was pretty steady. We were running two sizable books with a decent amount of PnL. Our Fed Funds book was like a constant rockstar and my partner was doing a better than average job at moving inventory and locking in profits on a daily basis. Unfortunately, my Eurodollar strategy was becoming more and more sporatic. In an effort to grow PnL's, I began trading some of the front flies on a mean reversion basis but this meant assuming more risks. Though I wound up taking in some profits, it wasn't an easy trade and some of the geopolitical aspects burned me for substantial losses.
• We take profits once a quarter, as June wrapped up, we were less than gangbusters on the P side. Summer is usually a slower time in the interest rate complex. Most of NYC goes to the Hamptons and turns off the markets with the lights as they leave. On a personal note, my wife and I were expecting a baby in early July and I was looking forward to taking some time off. 
• The summer took an unexpected twist when my partner asked to dissolve our partnership on July 23rd. He wasn't comfortable with the risk of the Eurodollar book and wasn't pleased with the return on my half of the partnership. In fairness, he was shouldering a majority of the profits so I can't say that I completely blame his decision. However, that meant a couple of things.  
• I would need to decided what to trade. If that was going to be Eurodollars...then steady as she goes. But if I wanted to go back to Fed funds, or options or yield curve or ANYTHING else, I needed to clear off a pretty sizable position that stretched out to 2017.  
• Was I going stay where I'd been for the last 30+ months, in the same office as a former partner?
• In some ways, I took a cop out on deciding what to do. I hit the eject button on a majority of my Eurodollar book. I think it cost me about 20K to simply liquidate it at the market. In hindsight, a very nice move...it cleared my head and I was able to move forward. I stepped back into the Fed Funds and began to trade it but with a new caveat. I left it intentionally small as I began the quest to do something new.

Ultimately, I reached the conclusion that it was time to pack up and leave. I needed a fresh start, new office and some change. The quest to find a suitable landing spot actually proved remarkably difficult. But I'm here...fully set up and running at roughly 50% capacity. Over the next few weeks, I plan on ramping up fully and I'll get back into the habit of writing weekly. I have nothing else to do since I'm now all alone in a 7'x15' box with a couple of windows. That story is next time.

Special thanks to @GeneratingAlpha for forcing me to write again. I appreciate the nudge and I'll get back to it.

~LH

I need to post about our trades and current positions, but until then, enjoy the run. A first time race report: Not sure how to do a real race report, so as a first attempt, please bear with me on the learning curve. My goal has been to run in the Boston Marathon. However, as arguably the most prestigious race out there, there are certain qualifications that have to be met in order to participate. The first, and probably the most daunting challenge is the qualifying time. These times are broken down by your age and as of the 2013 race, they were significantly lowered. As an 18-35 year old male, I now needed to run 3:05:00 or better {down from 3:10:59} just to be considered as qualifying. The time was lowered because last year, they had so many qualifying applicants that they chopped it off by time and my age bracket had to be sub 3:08:40 {more than 2 minutes faster}. In order for me to get this goal accomplished, I was going to need a tune-up race prior to going to Champaign for my next full marathon.

The Cary Grove Hillstrider's Half Marathon is the self-proclaimed hardest half mary in northern Illinois. Sounds like the perfect type of race to get the competitive juices flowing again and to work out some racing strategy before getting into a full. It was unseasonably warm as we prepared to start. The 8 am temperature was 68 and though that doesn't seem exceptionally hot, it would play a factor in my performance later on that morning. This was a non-tagged race, meaning that when the gun sounded you ran and if you were in the back of the pack, well you were just going to have a slower time.

My half marathon goal was 1:27 to 1:28. I figured that would be a sufficient time because the goal for a full was 3:00 {ensuring that even if they lowered the BQ time bracket for my age group I should still be able to run 2013}. I wanted to go run hard enough that I had very little left in the tank at the race's end. This strategy would prove strangely detrimental later in the race even though it seemed like an excellent idea at the time. My training partner had previously run this race and offered a couple of suggestions:

1. The hills are intense and there is no shame in running them a bit slower than pace.

2. Open it up on the downhill portion

3. Save something for the last 1.5 miles...

Here's the map

Miles 1-3
The course shape resembles that of a figure eight, starting and finishing at the local high school. The first three miles begin with a gradual decent and then an impressive drop down to one of the race's lowest points.

I was a bit slow getting out of the gate as I nestled in the front of the 7-minutes per mile group. As a result my first mile was relatively slow time {in race time} but it felt much faster to me due to all of the weaving and grinding it took to break free from the masses. The decent down the that first big hill was fast and though I was tempted to really open it all up, I restrained myself, thinking it would be intelligent save it for the climb I knew was just around the next big turn. My three mile split was 19:46 and pace wise, that was near perfect for what I was hoping to run.

Miles 4-8
These miles were marked with rolling hills though they were nothing too over-powering. Only one of them would need to be rerun and it was a steep grade in the front and a gradual decline. I attacked the first few inclines pretty quickly, shortening my stride and pounding up them right at race pace. I could feel the burn starting to grow in my quads, but from what I remembered of the course map, there would be a long, gradual decline again around mile 7. Banking on this, I pressed forward. I had found a group of 4 runners that we're running 6:45 miles very consistently so I began drafting with them as we eased down mile 7. As mile 8 approached, I first noticed the sign for one of the hills; it said "hill #4" and also named it, though I can't remember what it said. This was a hard hill and I felt my energy truly beginning to wane. Thankfully there were Cliff Gels at the base of the hill and with that blast of sugar I could feel my energy levels rebounding even as I reached the backside of hill #4.

Miles 9-13.1
Mile 9 was the switch back point where you were back on a section of road you'd already run. It was a relatively flat, straight shot that would eventually bank to the south and head up that first huge hill we'd descended to begin the race. My speed was holding fairly constant, but as the sun beat down and the racers around me could sense the finish creeping closer, the speeds quickened. My 9th mile would wind up being my fastest {6:25} and in retrospect, when coupled with the hill that ended after mile 10; my race future had already been written. I remember passing another runner as I climbed hill #5 and he championed me on a great race and a powerful climb. As I forged ahead I could feel myself creeping very close to the dreaded "red-line". I knew that line, and I knew that if I crossed it, I might end up like my first half mary {first attempt}. I was forced with a decision point: slow down and lose valuable minutes or press ahead, cross the line and pray that I make it to the end. I knew that hill #6 still loomed ahead; I remembered my partner's warning to save something for the grueling finish, I made the call. I slowed. I gave up 35 seconds per mile in an effort to finish strong.

Mile 12 held the final hill, but realistically it was a set of 3 softly rolling humps. Unfortunately the damage had been done, I was now struggling to maintain my final mile at a respectable pace. I was unable to dig any deeper to tap any hidden energies. I was over the line, struggling to reach the finish. As I came down the chute, I faced my feared time. 1:30:14 as I crossed the line, two to three minutes late. Though I felt exhausted at the time of crossing, I knew that I had made a fatal flaw in crossing the red-line. It tricked me in to being far more defeated than I actually was. In retrospect, it wasn't the end of the world. I'd run a good race, on hills, and I had finished within a few minutes of my goal. I had done 13.1 at a pace that will hopefully carry me to a qualifying time in just a few short weeks. My public stats can be found on MapMyRun.com 

Homepage
Results
Photos

Through 2/3 of a Q

Apparently, it wasn't my week off and I was actually responsible for getting a post or two out there. I have one ready to go, but its just a random trading story and to be honest, it still needs work. So, while I work on that, chew on this and some of our current trades.

Euro Dollars: 

Green March {'14} 9912.5 straddles:

We've continued to scalp the gamma as we've moved around. Our best sale to date was 9936.5 and on Friday we were able to buy in 9912s directly on the number. As the futures have traded lower, we've dumped all of our puts associated with the straddle for deltas. Average sale on those puts has been around 4 ticks. Currently our position is carrying an 80% short delta vs our remaining calls. This has been a laborious trade and would have been significantly better had we executed a few days later with the 9925 straddle instead of the 9912.5.

April 9950 straddles vs June 9937.5 puts:

We do this trade once a quarter, selling the April straddle to buy the June puts. The risk is that LIBOR explodes higher as we're naked short upside. Historically we collect between 5 and 7 ticks to put this trade on and usually get out when it drifts towards even money. However, as we put it on this time, LIBOR exploded higher. Specifically, the June contract rose quicker than we had anticipated and we took a fair amount of heat on the position. Thankfully, it has come back some, though this too looks to be a difficult trade going forward. Eerily similar to the Green Straddles.

Sept 9925/9950 put spreads:

As our June spreads get further out of the money {01.19.12} we've been actively looking for another insurance bet that allows us to trade some of our other products more aggressively. We settled on the Sept put spread for a couple of reasons that you've heard before. If we rip lower, it pays out 25 ticks, its pretty cheap 3.5 - 4.5, the decay on this spread is very small relavitve to the time frame. We've purchased this as our lotto ticket just in case any of these European Nations get froggy or PIIGiSh. Our average buy was 3.5 ticks vs Sept futures at 9955.

Longer term look outs:

• Really want to see the March '13-'14-'15 one year fly drift down towards -35. Don't necessarily want to be short here, but we'll be looking to accumulate a long position as we head down.
• Likewise with the Dec '13-'14-'15 one year fly, we feel that it is a short anywhere about -17.
• There seems to be a slight disconnect between what the Fed has been saying about the Fed Funds rate and where a couple of large players {presumably Brevan Howard} have been trading the futures. The current mandate is that there will be no change until mid 2014, however, starting in June 2013 and heading back there is a consistent trend of higher than average spreads. If the Fed doesn't move rates, through this period, there is a great opportunity to collect 'free money' by selling the June '13 at 9976.5 and buying the Jan '14 at 9963.5. You effectively "sell" each one month spread at 2 ticks if you look back to the front of the curve, these have all been exit-able around 0-.5 {some have traded as low as -1}. Not really advocating launching such spreads, BH isn't usually wrong. Just noting that there's a disconnect. Unfortunately, the locals in the FF's option pit wont make option markets out that far. So its futures or nothing.

Hope it helps. Fight the good fight.

~LH

Postitions

As usual the inventory continues to roll around and as always the hope is that this rolling comes laden with fat P and tiny L.

Fly update:
Sold entire core position of Dec '12 - '13 -'14 butterflies at an average price of -29, locking in a little better than 6 ticks of profit. Since that time, we've started to reaccumulate a small position AS LONG AS we're able to sell the Dec '13 - '14 -'15 fly as a package {1:1} for the price of -14 or better {eg buying -31's to sell -17's}. As I write this, that double fly is trading around -11.

Front Spreads:
We've completely rolled out of the March contract and unless something crazy happens {eg I get antsy and buy front month gamma} we don't anticipate getting back in. We're working to buy the June/Sept/Dec '12 fly for -1 or better. From our charting, it seems to have been tracking in fairly tight channel and buying -1s with the goal to add more at -2 fits our risk parameters. We'll have a soft-stop at -3.5 with an anticipated exit of positive 2.

Straddles:
As always, we continue to flip gamma around the March '14 9912.5 straddle that we're long. We will be looking for an opportunity to roll this to Green June shortly. Currently, we're short 30% of our deltas vs. 9918.

Put Spreads:
We've continued to hold our unhedged 91-93 put spread in June '12. Though it is under levels where we initially put it on, we have added to the position and it continues to be our 'insurance policy' in the event that all hell breaks loose around the Mediterranean Sea.

Outright Puts in the Fed Funds:
Interesting to note that within the last few days, a couple of major players have resurfaced looking to purchase downside protection. I mention this for a couple of reasons.

1. The Fed has proclaimed that they will not be moving rates until 'the latter part of 2014'. This is intriguing because the protection they're buying is for Feb of 2012.
2. The two firms doing the majority of the buying are JPM and Fimat. I can't speak with any definite authority as to who is behind these mega-houses, however in the past, Brevan Howard has always come through Fimat in the Fed Funds. He's been right more times than not and has fleeced the locals in that option pit countless times. Maybe he's back?
3. In our opinion, this is the type of trade that blows out traders. We've all heard the rhetoric about when the Fed will finally be moving rates and under that assumption you can safely sell every 9975 put to lower and collect your daily decay. However, the Fed is dynamic, and it wasn't more that 7 weeks ago that we were all clamoring for QE3. Now that stimulus is a distant memory and the we're headed to a S&P 1400 print...what's to say that we the rates don't start to get froggy sooner? Like 18 months sooner? Just a thought.

Trading size is always more fun, but so is being able to sleep at night.

~LH

Couple of Quick Updates

Good days are quickly maligned by trading errors. Best to stick them in a hole and move on. Take your lesson or your lump and keep slinging. I guess that maybe, just maybe its a zero-sum game and one of these days I'm going to have the winning error of a lifetime. That being said, I have no intention of holding my breathe for that moment.

I want to write about just a few of the Eurodollar positions we have on and how we're managing them.

Currently we have an outright long position in the Dec '12 - '13 -'14 butterfly. We established the position from roughly -35.25 and though we've scalped some intraday {+/- a 4 tick move} we are holding our longs. Against it, as a micro-hedge, we're looking to sell the Dec '13 - 14 -'15 fly. Though we're NOT doing this trade one to one {therefore not establishing a true Eurodollar double fly 1 x -3 x 3 x -1} we are doing this to allow ourselves a chance to catch the fly contracts rolling through different periods and configurations. We expect the Z2/3/4 to appreciate and the Z3/4/5 to sell off based on our analysis of their trends vs the constant maturity charts.

The March - June spread has been a lot of fun to trade as of late. We hedged our short position by layering into the March - June - Sept butterfly at -3.5 and -4. That fly is currently trading -1 and we're now short from that level. This is not a home run type trade. Rather we're just trying to catch the fluctuations as it meanders through various price levels and back. Ideally, we hope to be completely out of this fly by the week's end {2/17/12}.

Finally, we've continued to buy back our short deltas versus the Green March 9912.5 straddle that we're long. We maintain a short delta position of 50% from a price of 9931. Our straddle is still roughly the same price we bought it at {18 vs 18.5}. Also, in order to buy more deltas in, we have sold 50% of the puts that comprised our straddle at a price of 4 ticks. This allowed us to lock in some profits, get long some deltas, and avoid the impending acceleration in the theta decay. We still have 75% of our original position and have resting GTC's to cover our remaining shorts as we approach the strike. Conversely, we have GTC sells out our recently purchased deltas.

Hopefully your day was error free and full of huge PnL.

~LH

Blowing up, not Blowing out

Back in June '11, after a few beers, I began to shoot my mouth off about my athletic prowess as a runner. Though I hadn't run since 8th grade cross country, I was sure that I could still do it and furthermore, proclaimed that I would be running at least a half {if not a full} marathon by the year's end.

First race I ran was September 11th and it was one of the Chicago's Half Marathons. I finished...though its not exactly clear how. At some point, dehydration, hypoglycemia, and sheer lack of training caught up with me. I staggered the last few meters to the finish, woke up in the ambulance to some EMTs asking me questions, passed out again to wake up in the ER, passed out demanding that they don't cut my shirt off or destroy my iPod, woke up and passed out again.

I had hit the the runner's Red Line and had pushed my body past its working zone. Suddenly I had a new respect for the running and the toll it can extract from your body if you're ill prepared or not properly conditioned. In a strange, quasi world, it reminded me of trading.

It was as if the race had become a metaphor of my trading. Maybe I staggered to the finish, but the results had been less than impressive. My time of 1:38 was nothing spectacular and my arrival at the ER was ultimately a kick in the shins. It was as if I had just been trading huge, slinging futures here and there until the weight of my own position caused me to puke. All traders that have longevity in this business seem to have an innate sense of when to hit the eject button on a loser. Strangely in a race, that eject button was the finish line, but to hit in an orderly fashion, would have required me to walk. In my mind Walking was the same as Puking a position. I wasn't willing to make that trade. The results are documented in my permanent medical history.

I've made the puke trade countless times. It never feels good during the vomiting session, but the relief shortly thereafter is always euphorically refreshing. I'm reminded of one of the few stories I can recall from my uncle Al before he passed away. After listening to any problem you might have had he'd calmly say, "It doesn't matter how many times you've fallen off the horse, it only matters how quickly you get back on." I attacked running with renewed vigor. I adjusted my methodology, changed my diet, trained differently...almost as if I had gone back to the desk, found the charts and worked a new strategy for the next time my positions went awry.

I don't share this to say that I've got it all figured out in either of these areas {running or trading}. But I will say that I continue to do both regardless of the beat downs. The goal for me isn't to just finish the race or exit the trade, it is to smash my personal best and to squeeze every last tick out of the winners. More running tales later on, but for now, back to the grind of the trading day.

~LH

Super Bowl

I had intended on getting this out on Saturday or even Sunday, but as usual, life got in the way. By life, I'm referring to a 2 hour trip to Costco, church, little people who want to wrestle, and 36 miles of running over a 36 hour span. Oh, then there was that part about the Super Bowl consuming ~4.5 hours of my life. By the time I actually got around to writing, my brain was fried and it was moved to today's agenda.

Friday was a fairly busy day. I don't really want to write about the legitimacy of the NFP data and whether you believe it or not. Rather, I'd prefer to focus on what happened in the products we watch and where we think the next few weeks will take us.

Let's talk Fed Funds. There was a noticeable volume spike heading in to the week's end. Where we are normally seeing 18-22K contracts a day, we suddenly saw a bounce up north of 50K. Obviously, customers wanted to move some of their inventory prior to the release on the Unemployment figures on Friday. On Thursday, prior to the data, a new customer came to buy 3000 of the July '12 -- Jan '13 future's spread. He started accumulating at a price 2 ticks and paid up to 2.5. We count spreads on an adjacent month basis. That is to say, that selling 100 N/F spreads actually resulted in selling 600 spreads {100 of each adjacent month NQ, QU, UV etc...}. At the time, 2s looked to be a decent sale. However, by the time the customer started lifting our 2.5s the trade no longer looked attractive as all the hedges has disappeared.

As the number hit the tape on Friday, the Funds sold off 1-2.5 ticks {which, if you're familiar with this product, is a substantial move}. Right on cue the customer was back to buy 1000 more spreads and though he was only 2.5 bid, we were sure that he'd need to step up and pay at least 3.5 in order to get filled. Hindsight trading says we should have unhitched the wagon and dumped every spread we had in our inventory at that moment. However, we didn't and within an hour or so, the Funds had rallied, the spreads had collapsed, that bid was long forgotten as the 1.5s began to trade in N/F. The turn had been subtle, but the force behind it showed that market participants still agreed that we're not going to see a Fed Funds rate change until 2014. We did well when viewing the traded for 50K feet, however, had we taken a more aggressive stance prior to Friday {which market participants did post-NFP} we would have locked in a great trade.

~LH