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Trading Volatility, Ballasted by Gold

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Ok, here's another way to illustrate the same concept. Lets take the price of AGQ and ZSL on 1st February 2011? (This is using data from ThinkorSwim)

 

So AGQ was $66.71, and ZSL was $220.8.

 

As I'm sure you are aware 1st February 2011 was during a large run up in silver.

 

So let's take the price of AGQ and ZSL at the top.

 

AGQ was $182.63 on 28th April 2011 and ZSL was $67.15.

 

 

 

So if you had bought AGQ on 1st February 2011 at $66.71 and sold on 28th April 2011 at $182.63 you would have made $115.92 per share.

 

If you had shorted ZSL on 1st February 2011 at $220.80 and close the trade on 28th April 2011 at $67.15 you would have made $153.65 per share.

 

 

So this shows ZSL is a better vehicle to use as a double long than AGQ, and that's irrespective of whether it's a short or long term trade. It just follows that the longer the trade the more advantage is taken of the time decay aspect.

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I'll try and be diplomatic here but I think your thinking could be wrong here Roman. I understand the premise of what you intend to do, buy low and sell on a spike in order to take advantage of the leverage available with AGQ, but you seem to be suggesting that the time decay element with AGQ is an advantage when it is actually a disadvantage. Let's say that instead of trading AGQ you were trading ZSL.

 

So in other words any time you decide you want to go long $XXXX of AGQ, you instead went short the equivalent exposure of ZSL, this will give you the same exposure to the price of silver that you desire but with the added benefit that you profit from the time decay aspect during your duration of exposure, rather than lose out because of it.

 

Here's chart I made up, it shows the relative performance of short ZSL in black along with the performance of long AGQ in blue;

 

ZSLAGQ.png

 

At the end of just one year there is a very big difference in performance.

 

Well, that's certainly food for thought. Some reasons why i settled on AGQ. Also, keep in mind the AGQ trade is relatively short term... over a period of say 3 months.

 

1] Good vehicle for volatility.

2] An easy buy and sell, as both bullish on silver and USD [forms strong of liquidity]

3] Simplicity... shorting a double short is taking it to another level of complexity, but still may give it some thought.

4] The trade is LARGE for me so want to keep risks to a minimum [the minimizing of risk also means giving up the aim to maximize gains].

5] I have an over-all bias to be long silver [selling its volatility essentially involves hedging and diversification]. If trading ZSL i would have to at times buy a double short on silver. This is risky, for silver/ gold could explode at antime to the upside.

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Ok, here's another way to illustrate the same concept. Lets take the price of AGQ and ZSL on 1st February 2011? (This is using data from ThinkorSwim)

 

So AGQ was $66.71, and ZSL was $220.8.

 

As I'm sure you are aware 1st February 2011 was during a large run up in silver.

 

So let's take the price of AGQ and ZSL at the top.

 

AGQ was $182.63 on 28th April 2011 and ZSL was $67.15.

 

 

 

So if you had bought AGQ on 1st February 2011 at $66.71 and sold on 28th April 2011 at $182.63 you would have made $115.92 per share.

 

If you had shorted ZSL on 1st February 2011 at $220.80 and close the trade on 28th April 2011 at $67.15 you would have made $153.65 per share.

 

 

So this shows ZSL is a better vehicle to use as a double long than AGQ, and that's irrespective of whether it's a short or long term trade. It just follows that the longer the trade the more advantage is taken of the time decay aspect.

 

As I said, I'm more interested in a 'good enough' trade with minimal stress in real time circumstances. But I may still give ZSL some thought.

 

I'm not sure whether there is ever an objective or 'correct' trade. Seems to me there are many subkective/ psychological factors involved in trading also. This is why one strategy may not suit another... or that there may never be one 'right' way to trade.

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Ok, here's another way to illustrate the same concept. Lets take the price of AGQ and ZSL on 1st February 2011? (This is using data from ThinkorSwim)

 

So AGQ was $66.71, and ZSL was $220.8.

 

As I'm sure you are aware 1st February 2011 was during a large run up in silver.

 

So let's take the price of AGQ and ZSL at the top.

 

AGQ was $182.63 on 28th April 2011 and ZSL was $67.15.

 

 

 

So if you had bought AGQ on 1st February 2011 at $66.71 and sold on 28th April 2011 at $182.63 you would have made $115.92 per share.

 

If you had shorted ZSL on 1st February 2011 at $220.80 and close the trade on 28th April 2011 at $67.15 you would have made $153.65 per share.

 

 

So this shows ZSL is a better vehicle to use as a double long than AGQ, and that's irrespective of whether it's a short or long term trade. It just follows that the longer the trade the more advantage is taken of the time decay aspect.

 

Ok, to more realistically replicate the trade:

 

I sold AGQ at 60... now 52

IF I bought ZSL [at the same time, October] it was at 40..... it is now only at 42.

 

AGQ trumps ZSL here by near four times. There is more volatility [in this time period] in AGQ, and it is volatility I am targeting.

 

Even the earlier volatility to the upside compares favourably with ZSL; AGQ, 36-60, ZSL, 72-40.

 

zsl.png

 

 

nowagq.png

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Well, that's certainly food for thought. Some reasons why i settled on AGQ. Also, keep in mind the AGQ trade is relatively short term... over a period of say 3 months.

 

1] Good vehicle for volatility.

2] An easy buy and sell, as both bullish on silver and USD [forms strong of liquidity]

3] Simplicity... shorting a double short is taking it to another level of complexity, but still may give it some thought.

4] The trade is LARGE for me so want to keep risks to a minimum [the minimizing of risk also means giving up the aim to maximize gains].

5] I have an over-all bias to be long silver [selling its volatility essentially involves hedging and diversification]. If trading ZSL i would have to at times buy a double short on silver. This is risky, for silver/ gold could explode at antime to the upside.

 

Actually in posting here it's given me some food for thought too, so thanks for agreeing to go on the main board, admittedly I hadn't read your blog for a while. Someone I follow who I respect a great deal gave some great advice and that was that in trading/investing many times things are 180° from how they first appear. In fact where you have ETFs that are clearly vehicles that retail traders use, and they are clearly sold in the direction that the retailer is likely to use them in, eg double long, double short and therefore the retail trader is taking the hit for the lack of tracking, it seems that taking the opposite side of the trade and hedging it, might be an interesting idea.

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Ok, to more realistically replicate the trade:

 

I sold AGQ at 60... now 52

IF I bought ZSL [at the same time, October] it was at 40..... it is now only at 42.

 

AGQ trumps ZSL here by near four times. There is more volatility [in this time period] in AGQ, and it is volatility I am targeting.

 

 

zsl.png

 

 

nowagq.png

 

 

RH, in my examples I show that shorting ZSL is a more effective method of going double long silver than AGQ.

 

In your post here you are referring to a period when silver is going down and you're talking about buying ZSL. I am in no way suggesting that you ever hold a long position in ZSL. In my examples the only point where you would buy ZSL would be to buy back a short position in ZSL. In your example here what you illustrate is that AGQ trumps ZSL on the short side only. I am saying that ZSL is a better vehicle for going long silver.

 

You have highlighted here that AGQ is a better vehicle for going short silver.

 

What a paradox this is eh RH?

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This is the relative performance of short AGQ (in black) versus long ZSL in blue. (albeit over two years);

 

AQGzsl.png

 

This illustrates a further weakness with AGQ, if you are long and silver has a sudden drop it gets hit really hard, conversely we can see from this that going short AGQ is devastatingly effective during sudden collapses in the silver market, far more so than ZSL, and ZSL is supposedly designed to profit from just such situations.

 

It's each to their own in the markets but I do think it's interesting to look at the underlying characteristics of different trading vehicles.

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RH, in my examples I show that shorting ZSL is a more effective method of going double long silver than AGQ.

 

In your post here you are referring to a period when silver is going down and you're talking about buying ZSL. I am in no way suggesting that you ever hold a long position in ZSL. In my examples the only point where you would buy ZSL would be to buy back a short position in ZSL. In your example here what you illustrate is that AGQ trumps ZSL on the short side only. I am saying that ZSL is a better vehicle for going long silver.

 

You have highlighted here that AGQ is a better vehicle for going short silver.

 

What a paradox this is eh RH?

 

Yes, the discipline of this thread/ trade is effectively to 'short' silver, though I prefer to think of it as trading its volatility [i wear my dollar bull hat when on this thread].

 

Considering the virtues of ZSL would have to be done elsewhere i guess, and would involve a different motivation... along the lines of going long gold/ silver.... or to trade it within a longer time frame for dollars etc. Quite another kettle of fish to what I'm doing here.

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Ok, I didn't mean to post so much there, was just on a bit of a roll that's all, I'll continue on my own thread with this at some point.

 

Regards

 

PD

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This is the relative performance of short AGQ (in black) versus long ZSL in blue. (albeit over two years);

 

AQGzsl.png

 

This illustrates a further weakness with AGQ, if you are long and silver has a sudden drop it gets hit really hard, conversely we can see from this that going short AGQ is devastatingly effective during sudden collapses in the silver market, far more so than ZSL, and ZSL is supposedly designed to profit from just such situations.

 

It's each to their own in the markets but I do think it's interesting to look at the underlying characteristics of different trading vehicles.

 

Yes, i think we agree it's a good vehicle for volatility in the relatively short term.

 

A long AGQ is more complicated, and has perhaps caused some confusion. The timing of that long was crucial. I was waiting in USD for silver to collapse to 25 odd. I went in very heavily both for a long and for the counter hedging trade of volatility. I'm reasonably confident with the long because it was bought at the bottom of the massive long term consolidating trend [here is my silver/ gold long bias]. Even with an element of time decay involved, I think long AGQ will at least outperform $silver as silver strengthens next year. Of course, your strategy of shorting ZSL would be something to think about in regard to my long AGQ, but is not relevant, as I think you agree, to my 'shorting' AGQ in the short term on volatility.. to this trading thread.

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Ok, I didn't mean to post so much there, was just on a bit of a roll that's all, I'll continue on my own thread with this at some point.

 

Regards

 

PD

 

No probs. I certainly have some misgivings towards long AGQ [i trade AGQ short term for dollars to allay those misgivings... but then having a long position in AGQ bolsters this very trade... think of it as a 'dialectic' of sorts].

 

Just for the record, the long was bought one year ago then at 40. Even with the continued consolidation in silver, it is showing today, with AGQ at 52, a profit of 25%. And that is in a relatively bad year for silver. Imagine what it will do if/ when silver goes on a rampage next year.

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dece.png

 

 

Would like to see one more washout in silver [to 40], but if it continues to track sideways will consider buying back in at the end of this month/ this year.

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http://news.goldseek.../1355036580.php

Silver dropped 1.31% this past week. Last week I said silver was holding up much better as it was in a nice uptrend channel but as gold was breaking down it had me concerned.

Those concerns turned out to be realized this week as the uptrend channel was broken. Now silver is working on breaking through it’s 50 and 21 day moving averages here.

To my eye, the $31 area looks to be next up. We did start 2012 around the $26 level so all in all not bad gains for the year. It certainly felt worse than it was.

The spike in 2011 to $50 got everyone so excited, too excited. Moves like that don’t last and we know that but still so many lose all semblance of reality and the giddiness takes over.

I’m excited for 2013.

 

downweek.png

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consolid.png

 

 

Looking at both MAs, the consolidation in silver seems to be near completed. Am guessing the 50 week MA will provide support in the interim beofre silver strengthens towards 50 next year. Would like to see one more decent dip on market nerves towards the 'fiscal cliff' over the next week or two .

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Looks that way R.H. hope you don't mind me saying LSIL also breaking down to retest recent lows, currently 43.5.

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Looks that way R.H. hope you don't mind me saying LSIL also breaking down to retest recent lows, currently 43.5.

 

Yes, you were looking to buy back around 41 right? I'd love to see one last decent dip down here as my buy order is still placed at 40. IF instead it tracks sideway a bit will look at buying back in at around this levels. Will give it the rest of this month first.

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Yes, you were looking to buy back around 41 right? I'd love to see one last decent dip down here as my buy order is still placed at 40. IF instead it tracks sideway a bit will look at buying back in at around this levels. Will give it the rest of this month first.

 

Correct 40-41 on LSIL, though I'm also thinking hold somewhere up to 2/3rds back to see if either it busts through, as I seriously reckon it could or wait for a base to form and uptrend begin before ploughin the rest in.

 

If we get $26-28c on the real thing, I'll be a physical buyer too.

 

B.t.w TIMBERRRRRR B)

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Correct 40-41 on LSIL, though I'm also thinking hold somewhere up to 2/3rds back to see if either it busts through, as I seriously reckon it could or wait for a base to form and uptrend begin before ploughin the rest in.

 

If we get $26-28c on the real thing, I'll be a physical buyer too.

 

B.t.w TIMBERRRRRR B)

 

One more bungy plunge please Santa. :rolleyes:

 

 

one.png

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One more bungy plunge please Santa. :rolleyes:

 

 

Bungy plunge you say, I dithered and bottled towards the close, suppose I'm being greedy now, but looks more like a falling knife, so I just couldn't press the button.

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Bungy plunge you say, I dithered and bottled towards the close, suppose I'm being greedy now, but looks more like a falling knife, so I just couldn't press the button.

 

 

 

Ha! Yep, i have itchy fingers also, but will stick to my discipline; give it until Xmas, and look for 40.

 

 

wow.png

 

 

 

 

 

The longer term also helps as AGQ doesn't look too oversold yet. Nor dies silver.

 

 

 

 

wow2.png

 

wowsilv.png

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Kkkkkkkkkrrash! Good chance AGQ will hit 40 here... and then some.

 

 

It's a reaction to the Fed's statement yesterday about the dangers of QE, I reckon

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