Trading Volatility, Ballasted by Gold

[romans holiday]

RH,

 

Have you traded VXN, or have any views on this and its disadvantages relative to VIX?

 

Cheers.

I haven't traded any of these instruments as yet. Looking at VXN, it might be better; less entropic rate, and it spiked relatively higher in May than VXX.

 

 

[ecoface]

I haven't traded any of these instruments as yet. Looking at VXN, it might be better; less entropic rate, and it spiked relatively higher in May than VXX.

 

Yes, very marginally better; it went from 15.5 to 48.9, whereas VIX from 15.2 to 48.2.

[romans holiday]

Yes, very marginally better; it went from 15.5 to 48.9, whereas VIX from 15.2 to 48.2.

Can you buy/ trade it directly? VXX you can buy.

[ecoface]

Can you buy/ trade it directly? VXX you can buy.

 

Well, I took a small position on VXN this morning! All the volatility indicators are at the bottom of their channel and we should get a fairly aggressive/ strong move up or down IMO. Currently, it's gapped up so looking good.

 

[romans holiday]

Well, I took a small position on VXN this morning! All the volatility indicators are at the bottom of their channel and we should get a fairly aggressive/ strong move up or down IMO. Currently, it's gapped up so looking good.

Nice. How did you buy it?

 

Check this guy out... sounds a bit like Barney Franks:

 

http://tradableliquidityindex.com/vxn-nasd...lity-index.html

 

Close to a top. Leg 3 down... 2011.

[ecoface]

Nice. How did you buy it?

 

Check this guy out... sounds a bit like Barney Franks:

 

http://tradableliquidityindex.com/vxn-nasd...lity-index.html

 

Close to a top. Leg 3 down... 2011.

 

Cheated. I took a spread bet on it so didn't buy the product itself.

Asian markets are look troubled this morning and with Option expiry today too, it bodes well for volatility. All we need now is for a dollar rally and this will kick off mess everywhere.

 

Evilspeculator sees VIX as being a SELL trigger now too.

 

VIX chart

[Tune2001]

Cheated. I took a spread bet on it so didn't buy the product itself.

Asian markets are look troubled this morning and with Option expiry today too, it bodes well for volatility. All we need now is for a dollar rally and this will kick off mess everywhere.

 

Evilspeculator sees VIX as being a SELL trigger now too.

 

VIX chart

 

So I bought some VXX on Friday, but yesterday, when VIX jumped 8%, VXX only moved 3.2. Rubbish!

 

[ecoface]

So I bought some VXX on Friday, but yesterday, when VIX jumped 8%, VXX only moved 3.2. Rubbish!

 

I wouldn't compare them, just be pleased with 3.2% increase, like you shouldn't compare gold with silver; they are different products.

 

I think we can be relatively sure that we are in for a volatile month or so.

[romans holiday]

G20 coming up in Nov.

 

The markets might stay reasonably bouyant in the hope of seeing the leaders of the world save them. If nothing eventuates at G20, I wonder if this could be the catalyst for a panic.

[romans holiday]

 

 

I've been sitting on the sidelines with the Queen of Volatility, silver. Now she's shown her colours and broken out to the upside, I'll look to buy at the bottom of the retracement, which now looks underway. Maybe at 20.

 

Silver has to be a much easier buy than say something like VXX as you can be reasonably certain that the metal will hold its value well. VXX a much riskier buy may give you a 100% return if you get the timing right. Silver may only give you a 30% return [on a trade] but you'll be more confident to put on a much larger trade, and accordingly have the prospect of a larger gain.

 

Disclaimer: I'm looking to trade the volatility in silver to hedge a rather large position in gold.

[romans holiday]

Don't trust silver much here. Wonder if we could see a repeat... at which point I'd pile in.

 

 

[romans holiday]

The Kiwi dollar has soared in the past few months from 0.65 to 0.80.

 

Could go even higher to 0.85 or so. I think it's a good bet that the Kiwi will snap back at some point. A good trade could be to short the Kiwi and buy gold. When the Kiwi snaps back, to say 0.50, cover your short with US dollars. this would effectively give you half price gold.

 

 

[drbubb]

The Kiwi dollar has soared in the past few months from 0.65 to 0.80.

 

Could go even higher to 0.85 or so. I think it's a good bet that the Kiwi will snap back at some point. A good trade could be to short the Kiwi and buy gold. When the Kiwi snaps back, to say 0.50, cover your short with US dollars. this would effectively give you half price gold.

 

Buying Gold, and you finance with NZ dollars? What is the interest rate?

 

This will lose money if gold drops faster than NZ, but will also lose a bit (on interest), if that price holds steady

[romans holiday]

Buying Gold, and you finance with NZ dollars? What is the interest rate?

 

This will lose money if gold drops faster than NZ, but will also lose a bit (on interest), if that price holds steady

On a renewal of the risk off trade, the dollar strengthens and a commodity currency such as the Kiwi would be slaughtered.

 

Gold will come off a bit, but not much imo..... nowhere near as much as the Kiwi.

 

 

If the purchase of gold was funded with the Kiwi, you would be buying gold at near NZD $1800 an ounce [$1380 USD]... NZD/USD rate of 0.80. The Kiwi collapses against the US dollar; gold goes to NZD $2800 an ounce [$1300 USD] NZD/USD rate of 0.45.

 

Selling 2/3 the gold purchase would clear the NZD account, or clear with US dollar funds. If the Kiwi doesn't crash, and the interest starts to clock up, you could cover anyway.

 

The higher the Kiwi goes against the dollar, the more sense this trade would make. I think it's unlikely that a commodity currency such as the Kiwi could stay chronically strong against the dollar for too long. Maybe if the Kiwi goes to parity.....

[jerpy]

Don't trust silver much here. Wonder if we could see a repeat... at which point I'd pile in.

 

 

 

Question R.H if you don't mind.

 

Some believe we are in for a $U.S correction anyday. Normal expectation by many, would be a slide in stocks and commodities. But then there is the "manipulation" of Silver and the possibility a big shorts collapse ( can you assume this to be the case for me). Add the action in G/S ratio's of late, possibly linked to this, WHAT NEXT?

 

Do you still expect a pullback? I'm intrigued as to your expectation as i'm wondering will a possible short closing keep not only Silver strong, but regardless of any general market weakness, would it not be possible for Silver stocks (particularly producers) to resist any dollar sell-off and continue to outperform?

 

P.S Feel flattered you are currently one of my main contrarian silver bull indicators, so I hope you will oblige me an answer

[romans holiday]

Question R.H if you don't mind.

 

Some believe we are in for a $U.S correction anyday. Normal expectation by many, would be a slide in stocks and commodities. But then there is the "manipulation" of Silver and the possibility a big shorts collapse ( can you assume this to be the case for me). Add the action in G/S ratio's of late, possibly linked to this, WHAT NEXT?

 

Do you still expect a pullback? I'm intrigued as to your expectation as i'm wondering will a possible short closing keep not only Silver strong, but regardless of any general market weakness, would it not be possible for Silver stocks (particularly producers) to resist any dollar sell-off and continue to outperform?

 

P.S Feel flattered you are currently one of my main contrarian silver bull indicators, so I hope you will oblige me an answer

Yes, expecting a rally in the dollar, and a pullback in stocks and commodities.... at some point. But I'm pretty well hedged for either outcome. I'm not too concerned I missed a silver trade here because it would've only been a trade to increase my dollar hedge... other opportunities will come along no doubt. Also, it helps if I focus instead on those nice kilo bars of silver I piled into in 2008.

 

But I think your question is about silver here. I see it in a grey area between gold and commodities. It might not sell off as much as other commodities or mining stocks.... reason being it's most likely being monetized alongside gold. Gold, which would probably only come back a little, may also serve to keep silver from collapsing.

 

It's the silver stocks that I think would get slaughtered the most... especially something like GDXJ. I'd look to invest say half my dollars in some miners on a sell-off, and continue to trade the other half against silver. I reckon that if you can get one or two trades with silver/ dollar right, this would pretty much keep up with gold [i don't think the dollar will hyper-inflate, but remain a desired form of liquidity... after gold/ silver].

 

So in short, I think silver stocks will get hammered more than silver on a sell-off.

 

My approach to investing is liquidity driven. The "Portfolio" is roughly as follows:

 

Gold bullion 50%

Silver bullion 10%

US dollars 40%

 

I have so much in gold [and less in silver] because I see it as my core core position... less risky than anything else. Though still hedged with dollars in case I'm utterly wrong on gold. But then the 2 are not necessarily opposed when you consider the "drive towards liquidity" factor as seen in Exter's reverse pyramid.

[jerpy]

Thankyou for that yes it was specific to Silver, sorry if I didn't make it totally clear. Like to understand different views, as it helps keep the mind open to ideas/change and feel i've reasonably understood your view of P.M's. Such sentiment is one reason I held back somewhat on silver miner's, maybe my caution will be proven wise, even though i'm somewhat cursing not going more all in with many stocks of late.

 

Yes those cheaper 1kg bars do give a warm glow, mine might even turn yellow at some point, but I doubt it short term as I can't even remember where the dogs buried them with their bones

[romans holiday]

VXX at $45

[romans holiday]

Thankyou for that yes it was specific to Silver, sorry if I didn't make it totally clear. Like to understand different views, as it helps keep the mind open to ideas/change and feel i've reasonably understood your view of P.M's. Such sentiment is one reason I held back somewhat on silver miner's, maybe my caution will be proven wise, even though i'm somewhat cursing not going more all in with many stocks of late.

 

Yes those cheaper 1kg bars do give a warm glow, mine might even turn yellow at some point, but I doubt it short term as I can't even remember where the dogs buried them with their bones

I think the reason I didn't trade the recent volatility was because I was a "step ahead" of the game; I saw QE coming under restraint, yet Bernanke had another throw of the dice. I reckon it could be a costly one, and he'll have the dice taken away from him soon.... so much for QE to infinity.

 

Missing a trading opportunity doesn't worry me so much.... more interested in winning the war than every single battle. Those that run after everything often end up losing a lot.

 

Not concerned about gold because the continued instability will only reflect uncertainty. And uncertainty, above all else, is good for gold.

 

Regarding miners, I'm thinking restraints on QE will see the miners come back on a deflation scare. This would be the time to buy because an ongoing bull market in gold would most probably pull them up at some point.

[Tune2001]

VXX at $45

 

http://etfdailynews.com/blog/2010/11/09/a-...es-into-effect/

[romans holiday]

http://etfdailynews.com/blog/2010/11/09/a-...es-into-effect/

Cheers for that Tune. Had me scratching my head for a bit then. Nice little exercise though to show the illusory nature of numbers.

 

"For example, a 1-for-2 reverse split means you get half as many shares, but at twice the price. It's usually a bad sign if a company is forced to reverse split - firms do it to make their stock look more valuable when, in fact, nothing has changed. A company may also do a reverse split to avoid being delisted."

 

So VXX slid from 20 to near 10 in a couple of months. If it's a similiar period before markets start selling off, that could see VXX at the new 20 odd.

[romans holiday]

Note to self:

 

When wearing your trading hat, forget the fundamentals and technicals and focus on the news.

 

On QE 2, commodities went up on perceived risk

On G 20, commodities coming down on the perception of solutions.

 

 

.... and don't forget to wear your trading hat.

[romans holiday]

 

 

I'm going to start posting a bit more here on gold. What I find about the main gold thread is the lack of "context"... or the differentiation between short and long term calls on gold. A year ago when gold was at 1100, some thought, in the short term, it would correct/ consolidate back below a 1000, others thought it would blast up to 1400. In the medium/ long term near everyone [on the gold thread] was thinking it would head to 1400 and above.... myself included [i should admit that a year ago I didn't think gold would strengthen quite at the pace it has....I was labouring under the illusion of the long term trend on the linear chart.... duh].

 

And yet now a year later when gold has finally hit 1400, certain "gold bugs" think they were "right"... and presumably others were wrong. The reality is all were wrong and all were right; all were wrong in the short term because gold neither corrected to below 1000 nor did it explode up to 1400.... it tracked a middle course between these two extremes. All were right in the medium/ long term with gold finally arriving at 1400.... which was never in dispute.

 

I have to admit this lack of context to the conversation really "bugs" me.

 

Anyway, end of rant.

 

Probably the most central technical data point to my views on gold is the above blue line on the long term log chart. It denotes gold steadily strengthening against the reserve currency at around 20% a year. Gold is now continuing to correct/ consolidate as is predictable using that chart. imo it also shows the volatility of gold diminishing due no doubt to its monetization by investors and central banks.

[romans holiday]

A few months back I discussed macro-economics with a colleague I share an office with. I must have mentioned VXX among other things because now I receive an excited text confessing he had bought VXX at 20.... and that now the price is 46 [in real terms, in terms of his purchase price, it's down to 11 odd]. He's wondering whether to sell for a profit. Oh dear.... my and my big fat mouth.

 

Apparently, he put quite a bit of money into it [10% of his savings].

 

Any advice would be appreciated here. Should he hold onto his position, or sell at a loss? I'm thinking, of the cuff, he should sell half and keep half... in order to salvage the situation/ minimize the damage??? Or even better, sell the whole lot as the market corrects here... if he sells at 50 or 60 [in relative terms he bought at 80] he'd be minimizing his losses.... as it could just head down further.

 

btw... I advised him at the time to just buy gold.

[romans holiday]

Aussie dollar looks toppy [similiar with Kiwi]. If the market reversed akin to 2008 [big if] we'd see an explosive move up in the Aussie price of gold here... from 1400 to 2300 odd [66% odd]. This would reflect the collapse of the Aussie against both gold and the US dollar.