AAR & TOL 02 (Nov 08 - Jul 09)

[iam802]

I will be keeping a 'trading' mindset. Be it short, long...or straddle...whatever.. I will try to minimise loss and take profit wherever possible this year.

[kennynah]

a straddle at such a lowered VIX level makes sense, especially if one expects an explosion of Implied Volatility within the duration of the straddle position... but otherwise, straddles are typically costly...

all the best 802 !!!

[winston]

TOL:-

This bear market is worst than expected and I think alot of people will want confirmation that the economy has turned before they would go back into the stockmarkets.

Therefore, stockmarkets may lead markets by 1-3 months only, instead of the 6 to 12 months in past bear markets. That means that the trough could be longer than expected.

[winston]

TOL:-

What would make the markets go up from here ?

1) Short-covering ? Have the majority of the shorts covered their position ?
2) Long Funds Buying ? Are their redemptions over ? Are new funds flowing into the Mutual Funds ?
3) Hedge Fund Buying ? Are their redemptions over ? How would the Madoff scandal affect redemptions ?
4) Cash on the sidelines going back into the market as Valuation has certainly dropped over the past year
5) Markets are pricing in an Armageddon. What happens if it is just a slowdown and not a depression ? When would we know ?

The above is help me crystallize my thinking on the Market Direction. At this point in time, I still think that it is a Trading Market. Buy on Fear and Sell into the Rebound. Short on Euphoria and cover into the Correction...

[iam802]

TOL:

One of the things that I started late last year was to learn more about Options.

One of the things I noticed is that I become trigger happy and has a tendency to trade a bit too often.

I am going back to square one and putting in place a system to follow.

Some simple ideas at this moment:

1. Risk Mgnt
- how much should I trade
- target level
- cut-loss level

2. Trend
- Check the general trend of the market
- Zoom in on the counter and look at its support and resistant line

3. Decide on Timeframe to trade
- how can I benefit from time decay?
- check on theta (is it positive? ... are there any exceptions?)
- any catalyst within that timeframe (eg. dividend, earnings, roadshow etc)

4. Volatility (VIX)
- is VIX high or low (check the support/resistant of VIX)
- check vega (what do I want to benefit from? a falling VIX or a rising VIX)

Above is just for me to think about and put in place. Need a more systematic approach.

[winston]

TOL:-

A lot of money is sitting on the sidelines and they dare not come back into the market:-
1) Negative Economic newsflow
2) Poor earnings result
3) Expectation that Market Direction is downwards
4) Redemptions by Hedge Funds & Mutual Funds
5) Continued Short-Selling

I'm more interested on what would be the catalyst that would "motivate" this "smart money" to come back into the market:-
1) lower interest rate ? not likely
2) market starts moving up and people dont want to miss the boat ?
3) sharp drop in the market; everyone wants to be a contrarian
4) improving earnings outlook ? not likely
5) M&A ?

What else am I missing ?

[winston]

TOL:-

If you've been shorting the markets over the past 2 weeks, you are probably now sitting on quite a good profit. In view of the CNY holidays, would you be sitting on those profits or would you be covering your positions ?

Therefore, I now think that the HK markets would actually be very strong today and tomorrow as long as the Dow does not tank tonight....

[kennynah]

several china econ data released this morning, turned out rather positive...

[winston]

TOL:-

Market is not behaving as expected. After 2 weeks of decline, there should be a strong technical rebound. Instead, we're getting one day wonders.

What's driving it downwards ?
1) Short-selling ? Would you dare to short at this price ?
2) Hedge Funds redemption ? Possibly. But didnt they redeem a lot already and also placed some limit on future redemption ?
3) Mutual Funds redemption ? I dont think people are redeeming at this level
4) Poor earnings announcement ? Isn't that expected and built in the price already ?
5) Poor economic news ? Isn't that expected already ?

For the Asian markets, if it does not go up after CNY, that means that maybe it is time to short it again ..

[kennynah]

the technicals are pointing south....overall....if enough people believe in what they see... then it goes down....

Juicy Annie Kwan