Thursday, July 06, 2006

Back From the Slumber

Just like our wins and losses tend to run in streaks, so do my posts. A few people asked me recently about why I have a blog in the first place. After all, shouldn't an active fund manager keep his stuff to himself?

Short answer: No.

Long answer: I can tell the world exactly how we trade and it isn't likely to matter that much. By the way, the reason I say this isn't because I don't believe somone can't erase our "edge" - I think in fact they can. It is mostly because a player who is large enough to be able to do so isn't interested to trade this way.

After all, for example, catching falling knives with "unlimited" risk isn't going to hold up well with a prime broker's VAR model. Granted, I am a strong believer that standard VAR models are at best an indicator of potential risk. But, by that very virtue they often provide little value as to the real risk at hand. Since very few understand this (and this is only axiomatic to my own brain only), I bet VAR models will keep the larger players away from short tail vol/gamma strategies.

Now, as to why I have the blog - well, I like to share my views, my emotions, my successes and my failures. I also like to say things outloud (I often converse with my monitors) and execute my blabberings with real money. Trust me, when you broadcast to the world that you're going long Housing delta and then get your behind publicly handed to you, it's a doubly learning lesson. I don't like looking like a fool (and paying dearly just to enjoy its questionable pleasure), but I do like to get value out of every action I take. So, when I am wrong and the whole world knows it, I learn that much more.

BTW, yeah, Housing was a bad play. :)

We've done a lot of churning over the past few weeks and a few good things came out of it. One observation that I can make now is that the market feels "not so gloomy, and actually kind of happy" - a strange sentiment given that the NDX-100 is just 40 points away from its "crash" low. The S&P, Dow and Russell look a lot better though, so maybe that's where the sentiment stems from. No directional call here, although my gut tells me that we're going to make all-time highs on the Dow.

What we are doing here is buying deltas in beaten down issues that have good rolling trends. I think any downticks in things that have been hit (think MRVL, AZO, CHS, etc.) are good opportunities from the short term perspective. Also, any sharp corrections off strong, volume-driven moves up (LVS, CMI, FORM, etc.) create good short vol plays.

I won't do a breakdown of sectors here as I usually do as I currently don't have an opinion that I am willing to execute. For now I recommend treating this market as a basket of radom stocks that have their own behaviors. Of course, correlation is still there, is hardly avoidable, we all know that, so damn the torpedoes.

Good luck tomorrow!



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