Goals for 2012

I'm no Jim Collins and this wont be a post filled with BHAGs. Rather, I just want to lay out a few macro bullet points about what I'd like to accomplish over the next 12 months. This will be my acid tester. A little strip that I've placed out there for everyone to poke at...and maybe hold me accountable to.

Goals for 2012 {1-5 Corporate, 6-8 Personal}

1. Create a sustainable trade in the EuroDollar Future's market. Not just taking blind risk {e.g. "Let's buy that spread because it feels cheap."} instead, making educated assumptions on risk and return and trading it with a directional bias at all times.
2. Manage my electronic trading more efficiently. Whether that is my auto-traders, auto-spreaders, or just my click trading, I want it to be done with more streamlined efficiency. I want to be able to watch the code work as planned and react accordingly if something gets derailed. 
3. Profits: I'd like to hit the % break by the end of Q3 2012. This will require at more effort than I'm currently exerting and wont be an easy goal. If we can achieve this prior to Sept 30, 2012, I'll have a legitimate shot at a personal financial best for a fiscal calendar.
4. Grow as a team. I've mentioned that we're adding another member next week. My goal is that he doesn't make a dime for the first three months. REALLY. The last thing I want is someone that thinks they have it all figured out. However, I do want him to succeed, and to wildly pass even his personal goals and aspirations. This will only be possible it we {the three of us} can figure out how to work as a team and how to build each other up and not destroy the boat we're all sailing on. I want to be an integral part of that growth and mentoring.
5. Begin to ask the question(s) about what the next steps are. Do we expand in terms of personnel? Allow ourselves to take on customer funds? What is the next level of our trading experience? 
6. Write MORE. I maintain a couple of blogs and a pair of Twitter accounts. I want to make sure that I respect what's in me to write and actually put most of my thoughts {trading related} on here.
7. Continue running. Specifically, I want to run the Illinois Marathon {Champaign, April 27-29} in under 3 hours. That should allow me to qualify for the 2013 Boston Marathon. I also want to run Chicago, however, its too far away for me to pick out a finishing time as of now.
8. Finally, I want to do some type of educational growth in my life. Whether that is continuing education or a refresher course or perhaps heading back to school for some type of graduate work, I'd like to reengage with learning.

That's it. I'm sure there are a bunch more. However, as I try to distill them down to the macro themes, these are the ones that keep emerging. Hold me/we/us to them.

as a fun link, read this Jim Collins post...it just makes sense

~LH

Closing the year

I'm looking forward to closing the books on a rocky 2011. In terms of trade, it was tumultuous to say the least. That's a surprising statement considering Q1 of '11 was actually a great time to trade. However, as the year progressed there seemed to be no end to the speed bumps I encountered.

Chronological review:

• Jan-March: Everything was firing at full capacity. That's not to say I didn't have losing days, but the quarter was profitable and gave reason for hope.
• April: I hit a legal snag that interestingly intersected my personal life with my trading life. It cost me 10 trading days and a way too much money. Externally, I was able to deal with it by escaping to Mexico for a week. Internally, it was just extremely frustrating to feel like like the victim and still be forced to play {pay} by the rules.
• May-June: The doldrums began earlier than expected this year. Many of the spreads began there march towards 0. This seemed strangely early and paper was hell bent on selling anything with value in the Fed Funds. I eked out a scratch for the quarter, but not without some last second heroics. 
• July: Dead, didn't trade very well. My partner had a good month, but I was never able to gain traction.I decided to start running {well, actually, I started on June 11th, but now I got serious}with hopes to complete a half marathon and a full marathon by year's end.
• August: At the Aug 9th FOMC meeting, Big Ben decided it would be a great idea to take a few hundred thousand from me, my partners, and my backer by announcing the following, "The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." As we all rushed to puke our spreads to each other it became apparent that I would need to find another market to trade.
• Sept: The grind back toward parity was slow and tedious. Little by little I peeled off the pieces of my book that showed small profits and gradually began to march back to even.I ran my first competitive race since 8th grade...and wound up in Jackson Park Hospital's ER with dehydration and hypoglycemia. Not to be deterred {it was just a bad trade, right?} I continued my pursuit of running my first marathon in December.
• Oct: I officially team up with the Neapolitan Man, merged our books and began a quest to add new products. Then the MF disaster struck. It paralyzed our accounts and broke our stride just as we were beginning to make significant headway. We're thankful for our backers who have made us whole, even though they still have outstanding monies with Corzine and Co. 
• Nov-Dec: We remained profitable, though we were never able to regain the swagger we seemed to be rolling with prior to the MF collapse. We identified some of the areas which we'll be focusing some of our additional energies on {trade wise} in the next few months and years. We found our next trading companion as well Mr. PRD {Philosophical Rail Defender} and he begins his tenure at the first of the year. I did run my first ever marathon {a full 26.2 miles} and surprised myself by clocking a 3:10:25.

Looking back...it wasn't a horrible year, but I'd prefer to never repeat it. I have plenty to be thankful for, but there are vast areas that need improvement. Everything from trading, to running, to relationships, to life, I look forward to attacking them all in 2012.

Hopefully, I slip one more post in this year and lay out a few of the goal we have for 2012.

~LH

ReEngaging after a long drought

It's been a long time since I've sat to seriously write my trading thoughts. However, as the New Year approaches I once again feel the urge to type.

Realistically, it wont be a daily thing. To be honest, it will be whenever the inspiration strikes. My goal is to take the notebooks and post-its around my desk and turn them into coherent thoughts. I no longer have the privilege of sitting next to the Practical Thinker, but I'm still seated next to the fabulously brilliant Neapolitan Man and we're looking forward to bringing on one other individual to help with the increased bandwidth. I'll probably be the primary writer, but their ideas will greatly influence what gets put out here. 

We'll stick with what we believe we know best. Mainly Fed Fund and EuroDollar futures and options, as well as some yield curve materials. We haven't traded a yield curve product for at least a quarter if not two, but our goal is to add them back into the arsenal of toys. When our newest member Mr.PrD {Philosophical Rail Defender} joins us at the first of the year I expect that we'll add commentary in the FX and hard commodity {GLD/CL} areas.

In terms of updating what we have on for the last few weeks of December, don't let this disappoint you...we've got virtually nothing on. A few small scattered option trades here and there, a tiny FFs book, and a scant amount of ED 1x2 double flys. As the New Year rolls around, we'll be looking to build a position and running timeline to track our success and failure!

Closing Note:
I don't plan on pasting large amounts of non-original content on here any more. I'll use my Twitter account to repost articles that I find useful. Feel free to join along in the fun @LeftHash

~LH

One more cartoonish moment

Found the text and made the movie!

If you need the external link, go to XtraNormal

~LH

The Panel Says

A couple weeks back we made mention of a little-noticed event that was creeping ever closer on the calendar. If you forgot, its right here {09.30.10}. The event is the final release of Obama's Committee on Deficits, however we got a sneak peak a couple days ago. {Go here to read it in its entirety}

Here's the link to the Bloomberg write up. But let me summarize a couple of points. Just as Applegate predicted, they recommended pushing the retirement age 68 and eventually 69 {even if it is as late as 2075}. The CoD suggested eliminating various tax credits or breaks on things such as mortgage interest while lowering top tier income taxes from 35% to 23%. HUH?

Yeah, not only are they suggesting that the Federal Government lower taxes to balance the budget, they have actually stuck a cap on the total amount of receipts they can collect. Yep, that's right. The Feds can only collect receipts less than 21% of GDP. Its hard to bail the water out of a sinking ship when then hull is shattered and being held together with knitting yard.

For a fantastic read on the subject matter, swing over to The Conscience of a Liberal by Paul Krugman at the NY Times. He's a better writer anyway. Just glad to say we saw part of it coming...

~LH

A former life

This is too great not to re-post!

{there is some NSFW language}

I think I've had this exact conversation...more than once!


UPDATE: Here's the QE2 version with some choice words for the Fed and "the Ber-nack"
~LH

Silence wasn't golden

In some respects, I find it very difficult to write after getting pounded. At other times, it's actually a stress-relieving endorphin that allows me to refocus my thinking.

To be blunt, some of our assumptions of the QE2 announcement and the subsequent market follow-through were just wrong.

I do want to update some of our larger trades now that we've had a rally, a pull-back, and rolled plenty of our inventory.

----------------------

In the 30 yr bonds:

We sold out of our longs in the 137 calls prior to the QE announcement.

In the March Euro Dollar:

We rolled our March 9925-9950 put spread out to the June 9925-9950 put spread. We executed near the highs of the move for a cost of 1 tick. This will provide us with 3 more months to catch the credit event we still believe is looming.

In the March and May trees:

We have covered the March and we're in the process of covering the May. We originally put the on for a credit to the 1 leg and we're now selling them for even money. This helped us finance our ED put spreads and we are actively looking for ways to get some more premium shipped in, ideally in the FFs.

The NOB is still at 25 year highs. The range on Wednesday was almost 2 points. {that's 64 ticks at a price of $156 per one lot} Though it settled off the highs, it was up over a point. At this point, we have no position on as we attempt to reload and find a position that will allow us the capture what we think is the impending flattening.

~LH

IM rants

This was just way too funny to not post.

The article in reference is from Bloomberg and you can read it for yourself right HERE

Neapolitan Man: that article, was like parents telling their teenager they are going out of town for a week and not to throw a party

LH: LOL

Neapolitan Man: it was so absurd

LH: yea, and that the key to the liquor cabinet is hid under the sink

LH: ...

Neapolitan Man: yea

Neapolitan Man: as they are pulling away the kegs and nitrous tanks are pulling up

LH: hahaha

LH: wait, what? who brings the nitrous

LH: {but it sounds awesome}

Neapolitan Man: the bankers do

Neapolitan Man: this isn't your normal kegger

Neapolitan Man: they are going to rape and pillage with 200 billion every month

LH: yea

LH: but

LH: for how long

LH: and can we assume that when they turn off the spigot

LH: the world reverts?

Neapolitan Man: i don't know, if it is up to lloyd it will go on for at least a year maybe 2

LH: damn

Neapolitan Man: the world will never be the same

On a side note. We're convinced that the one of the better plays for the next few weeks is....wait for it.....

LONG GAMMA 

By purchasing equity gamma or yield curve gamma you get the exposure to the following upcoming events:

1. First Look GDP {10/29}

2. Nov Elections {11/2}

3. Fed Meeting {11/2 - 11/3}

4. October Unemployment data {11/5}

5. Treasury Auctions {11/8 - 11/10}

6. QE2??????

~LH

Execution that hurts

Yesterday, on the 1.25 point sell off in the US {30 year} we decided to play the 'mean reversion' game and take a shot at getting long some upside calls.

We purchased the December {Z} 137 calls for 20 ticks. Our motiviation was as follows:

1. We are currently at the 60 day support level in the USZ {roughly 130}

2. We are anticipating a stock sell-off as well as the corresponding bond rally following next week's supposed QE2 announcement.

3. A trusted adviser taught me that when all else fails and you have no idea what to do, buy gamma.

{they're currently priced at 11-12}

Other things we've done or rolled out of.

1. We have taken 75% of our E0X 91-93 put spread off. We purchased it for 3.5 and have sold it for an average price of just under 5 ticks.

2. EDU v FFU, we purchased 28.5s in the spread and sold 31.5 and 32s {completely exiting the trade}

Finally, my Philosophical rail Defender alerted me to the following theory about the Nov 3rd announcement. Fascinating opinion. {this text comes directly from an IM conversation}

So here is my 10 delta prediction, {we'll get} no explicit announcement of QE, stocks tank, PIMPCO takes it on the chin and puts back {their long book of} MBS to Bank of America. The Govt does a Citi/GM style bailout with BAC. {As a result} Geithner gets ousted {and either} El Erian or Gross will move into the drivers seat at Treasury. They will then propose a bailout of state pensions via the Treasury issuing 100 year bonds at 6 pct in a swap for all pension assets. Then the Fed continues to stealthily purchase everything not nailed down.

~LH

Get Long {might be wrong}

Our markets are slow and getting increasingly cheap. A few thousand contracts here and a few hundred over there is about all we're seeing these days. ED volume has fallen to new lows in total contracts traded. It's as if the world is in a post Thanksgiving induced coma. It has been fed cheap money in infinite amounts. Now as it lays and tries to digest everything, its being lulled to sleep in an environment of sinking volatility.

I'm seen this movie before, somehow it always ends in tragedy. {However, it is only painful if you are caught holding the potato when the music stops.}

Few of the things we would like to do.

1. ZH diagonals in the TY and US. I would like to grab some cheaper gamma and finance it by selling wings. Ideally, we would like to do this with puts. Our medium term outlook {3-6 months} is that we'll stay range bound in the yield curve with moderate moves within the range that will help you to finance your decay. {Z28p v H21p gives you positive 6.5 gamma for 2.75 ticks of decay a day}In the event of a credit meltdown, we suspect the bonds will go higher, making a short longer dated call a risk to your overall position.

2. In order to capture the 'cheapness' of implied risk, we think that you're best served putting on steepeners across products in FF v ED {sell the ED and buy the FF}. Of particular interest to us is the EDU v FFU. The spread between the two of them has recent traded at its low {28} and it provides a couple of plays as we go forward. a) if the world ever gets frightened by credit risk, European or American GDP, or some other nascent economics flag you'll most likely see the EDU react in a much more violent way then the FFU. b) under current decay models, the EDZ v FFZ is at 17 with a QE2 bump priced in. This means you have a pretty solid floor at -9, though we are looking at a stop around the 24 range and an anticipated exit at 40.

3. We still like being short the NOB. If you can stomach the stress, it has a long way to fall back towards reality.

~LH