Trade ideas...lets see what we can come up with

[quant_trader]

Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. Also, don't forget that yield curve is inverted between 6mo and 2 yr.

[DcifrThs]

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Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist)

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doesn't that refer to oil vs. heating oil or other products chemically 'cracked' from the initial 'dirty' product?

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Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations.

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i'm not really interested in risk premia. i want to express a specific macro view in the gold/silver futures market for alpha generation purposes.

historically, there have been returns from holding backwardated futures contracts till the next near by and rolling it over. i'm not as well versed in this area though so i don't want to think about that specifically as a macro based trade idea.

if youw ant though, we can discuss your expectations of capturing the 'backwardation premium' into the future and how it relates to different commodities. that'd be an interesting discussion as well, but for trade ideas, i wanna stick with macro views expressed as trades.

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Also, don't forget that yield curve is inverted between 6mo and 2 yr.

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yes, but that is i think a mistake and there are likely opportunities there as well. haven't outlined those yet here though so that is something i'll think about and get back.

thanks,
Barron

[WindFallProfits]

buy CROX and ICE. these stocks are close to breaking out and if the market continues to rally, these stocks will lead.

[ifckladyluck]

[ QUOTE ]
Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. Also, don't forget that yield curve is inverted between 6mo and 2 yr.

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you will lose your stack on the roll. not to mention you probalbyd ont have the cpaital to put on a perfect crack spread (due to underlying notionals)

[DcifrThs]

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[ QUOTE ]
Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. Also, don't forget that yield curve is inverted between 6mo and 2 yr.

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you will lose your stack on the roll. not to mention you probalbyd ont have the cpaital to put on a perfect crack spread (due to underlying notionals)

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forget the "perfect" crack spread for a second.

to execute 1 crack spread you just need the margin on 1 long contract and 1 short contract and the ability to weather a small storm, right?

Barron

[ifckladyluck]

refinery ratios, which have a fundamental basis, are 5 barrels of crude = 3 barrels of gas + 2 barrels of heating oil.

you can put on 1-1 crack spreads, although i think these are more speculative than anything.

[DcifrThs]

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refinery ratios, which have a fundamental basis, are 5 barrels of crude = 3 barrels of gas + 2 barrels of heating oil.

you can put on 1-1 crack spreads, although i think these are more speculative than anything.

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ah, i got it now. all that margin would make a dent. i dont know notionals/tick size for RBOT or Natural Gas but crude is 1k/point. margin is probably around 20% right?

if so the amt is pretty significant.

Barron

[DcifrThs]

Another trade today:

US 10yr yield is now just above 5.02%.

likely causes are 1) economist's survey reveals they feel new growth will not cause inflation so no rate hikes in the future (capacity hasn't fallen, so future demand must be expected to fall). in that vien, home depot & others have talked their forcasts down.

2) subprime downgrade possible for just over 12bil in securities by S&P. may cause demand for safe debt.

3) related to 1, possible slower growth & lower earnings and feeling that subprime mortgage market may still indeed spill over to consumer demand which has remained robust throughout.

i think there are some good reasons for the rally, but i feel it overshot and the yield we are seeing now is too low relative to current economic conditions imo.

so i'm back to being more strongly short the us10yr.

maybe a signal of around -50 to -60%

Barron

[DcifrThs]

[ QUOTE ]
Another trade today:

US 10yr yield is now just above 5.02%.

likely causes are 1) economist's survey reveals they feel new growth will not cause inflation so no rate hikes in the future (capacity hasn't fallen, so future demand must be expected to fall). in that vien, home depot & others have talked their forcasts down.

2) subprime downgrade possible for just over 12bil in securities by S&P. may cause demand for safe debt.

3) related to 1, possible slower growth & lower earnings and feeling that subprime mortgage market may still indeed spill over to consumer demand which has remained robust throughout.

i think there are some good reasons for the rally, but i feel it overshot and the yield we are seeing now is too low relative to current economic conditions imo.

so i'm back to being more strongly short the us10yr.

maybe a signal of around -50 to -60%

Barron

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i think it's time to stress this again as at this moment (11:09am July 18th), bond yields are trading at 5.018%.

inflation data is still pushing the upper boundry coming in at 2.2% core reading yoy and with June readings at and above expectations at .2% for headline and .2% for core respectively.

yes, crude oil is high which may depress consumption and bring out some slack in capacity. but there is an offset there too, high crude oil creates large surpluses in oil exporting countries. those surpluses find their way back to the US govt bond markets since a whopping 2/3s of other country savings are in US bonds. so net net, the effect of higher crude on bond prices may be anywhere from slightly positive (pushing yields down) to even: either way, not a big upside for bonds as many seem to think could be the case.

despite this, the economy has been very strong and is likely to continue to stay as such keeping capacity at or above its level of 81and change %. anything higher (i.e. leading indicators coming in tomorrow at more positive than the consensus -0.1% and/or jobless claims coming in below the 310k consensus) and we'll likely start to see more upward pressure on inflation.

we'll get some more data next week as advanced GDP and durable goods orders come in. i think these are likely to show strength and come in at or above expectations.

there is a risk in that the "spillover" fear is still imminent if consumption comes in as a result of reduced buying power of subprime homeowners. at best though, this will simply delay a rate rise rather than spark a rate cut (still a slight likelihood priced into the fed funds options markets).

capacity is too high, growth too strong, and inflation too close to uncomfortable levels for yields of 5.018% to be justified imo.

Barron

[DcifrThs]

New week, new trade idea.

i think it was mentioned before during the "crisis" last week, but i just read enough to feel comfortable with it.

i'd be fairly short the CDS for both goldman and merrill (short meaning that i'd bet the cost of insurance against default for goldman and merrill will fall)

they are both right now trading at a cost that implies a Ba1 rating (or B- or BB- i think from S&P, basically below junk/investment grade crossover) while they are both rated Aa3 (or AA i think, one of the top ratings).

clearly ratings lag markets and both may not perform as well as they have in recent years, but the cost of insurance against their default is treating them like they are junk. that isn't right imo.

i'd like to see how their corporate bodns have been trading (if they have any issued?) recently to get a sense for the actual spreads above treasuries and if the fear in the CDS market is also being exhibited in the corporate debt market. if the spreads have also jumped a ton, i'd long the spreads. (you execute this by taking a long position in the bond or a futures on the bonds and a short position in the similar duration treasury or treasury futures contract. you'd bet for the spread to narrow).

typically, i wouldn't want to be long corp bonds at or near historical lows of spreads, but if they jumped a ton as a result of subprime fears and fears that they may default due to holding massive portfolios of loans (for chryslter and other buy outs that haven't been digested by the public) then i'd want to bet they'll come back down when people realize this is just banking.

before credit derivatives, banks actually made loans based on the credit worthiniess of candidates and they profited off of the spread between their costs and the costs of their customers (in this case chrystler et.al.). the other side of the argument is that goldman & merrill didn't choose to make the chrystler loan so much as it fell into their lap.

either way though, even if those loans DO default, betting that merrill or goldman would default as a result imo is a losing bet.

i'd have a conviction of this at above 50%, maybe 60-70%. i'd think the CDS should fall to at least the A credit rating. goldman sachs traded as junk? jesus, that'll be the day.

anybody wanna take side bets on whether goldman defaults in 5 years? lol.

Barron