Friday, January 27, 2006

Jacob says "I can do it too"

My girlfriend's 4 year old nephew just peeked at my workstation and asked: "What are you doing, Dima?" "Looking for opportunities in the market", I responded. Jacob turned and looked me in the eye. "I can do it too!"

Come to think of it, I bet he can. Every time I look at many traders' performance I wonder how much of it is attributable to a theory called "survivorship bias". The theory simply states that the observable performance is heavily skewed due to the fact that only the surviving parties get to report it. So, by the very virtue of them having survived the reported performance will be quite positive.

So, take a thousand monkeys and let them throw darts... You know the rest. So, who's to say that best traders are really best? Something to think about.

Anyway, we're actually seeing a dip following a very favorable leg up. Part of me is apprehensive since I don't want a dip. The way to get out of last Friday's slide is to grind higher without letting anyone in. This dip tells me that the market is very fickle at this point. So, a rally back to the day's highs would be a very clueful confirmation of the positive move.

The way we're gaming it with Cadence Capital money is via additions to our Semi positions and selling of some put premium in them. Odds favor doubling up for a move higher.

BTW, watch the action in NDX vs. home builders. Both sold off nicely mid-day. I would love to see KBH/TOL/HOV/etc. complex to stay down with NDX moving higher. That will give us the reason to get very negative (read: net short delta) on that sector.

Cheers,
/Dmitry

2 Comments:

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