For the month of September, I did a total of 9 trades; 5 spot trades and 4 options. I lost on one option and won on the rest.
What is important to bear in mind is that options is a great way to minimize your loss upfront and psychologically accept the cost or loss prior to executing the trade. In other words, I made the decision on my risk appetite and was prepared to gamble away US$8,800 in premium cost of the GBPUSD Put Option.
Nett of the loss of the option trade which was a negative 8.8%, our nett absolute performance for the month of September was 51%. Adding this on to our total absolute performance currently standing at 199.1%, bring the total absolute performance to 250.1% year to date.
Some of you may or may not yet have asked me the question as to how and why I measure my performance on an absolute basis rather than an accumulative basis? An accumulative return distorts the overall return when one is making good monthly returns, the base ends up being larger and larger and then, the return for the on going month becomes smaller relative to the larger base, even though in absolute terms, the monthly return achieved could be considerable.
Absolute returns are more realistic, I set aside my principal monies or collateral in account X and then, I deposit my profits or debit my losses from a separate account Y. My absolute returns is simply profits or losses for the month divided by X expressed as a percentage and then adding it on or subtracting from Y. Y would be the total aggregate net profits divided by X expressed as a percentage. In other words, if US$100,000 is my X and I have a value of US$200,000 in Y, then my absolute return is 200%.
I trust the explanation clarifies any queries you may have.
On September 27th, I saw a scalping opportunity in the AUDUSD, so I short the AUDUSD at 0.9358.
However, as I continued to observe the technicals, the push down didn’t seem convincing, so I decided to square the position at 0.9335 for a meager 23bps trading profit.
I looked at the AUDUSD, felt that it is too strong given, the weak economy, structural weakness, impending inflation and poor job numbers.
I decided to BUY a 1 month Put Option on the AUDUSD, strike at the money spot of 0.9640, expiring 22 November 2013, premium of 107bps and breakeven of 0.9533.
I am looking at a 1:1 payout at 0.9425 and a possible 2.24:1 payout at 0.9293. Let’s not forget that it was barely three weeks ago that the AUD was at 0.9280. I believe the likely outcome would be about 1.6:1. We’ll see.
I was watching the screen and at about lunch time, I noticed the pound starting to slide. I quickly looked at my charts and I noticed that the stochastics were turning down, the ichimoku; tenkan had just the kinjun from the top down, and the price trend broke through the cloud.
I confirmed it at both the 15 minute and 5 minute time frame……………looked really good, so I short the GBPUSD at 1.6230 with a SL at 1.6250. The pound started a slow grind downwards and at about 330pm, an hour before the MPC and BOE minutes at 430pm, I decided to square the position and bought back the pound at 1.6155 for a 75bps pop!
I placed as SHORT USDJPY stop if bid at 98.00 when the spot rate was at 98.33.
When the weaker non farm payroll number came out the JPY strengthened to 97.87. My order was filled at 98.00 and I squared the position at 97.90 for a trading profit of 0.10.
Who really knows what the non farm payroll number is going to be; could be stronger or weaker.
I did three spot trades; the first one was going LONG EURUSD, going SHORT GBPUSD, and then going SHORT USDJPY. All three trades were placed on a stop if offered or bid.
In the case of the GBPUSD, I was hedging against a possible stronger non farm payroll number, so I SHORT GBPUSD stop if bid at 1.6100 when the spot was at 1.6131.
As we all know, when the weaker non farm payroll number came out at 148K versus expectations of 180K, the USD got clobbered and the GBPUSD when up to 1.6200.
I was betting on a poor showing of the non farm payroll and so placed a LONG EURUSD stop if offered at 1.3690 when spot was trading at 1.3675.
When the weaker non farm payroll number came out, the spot shot passed my order and my trade was executed. I then squared my spot position at 1.3734 for a 44 bps trading profit.
Markets were just see-sawing back and forth, when I was the opportunity on Friday night, actually it was already Saturday morning at about 1:30am Singapore time.
I saw on the technicals moving back up from the trough; fast and slow stochastics cutting up from below, Chikou flattening out, so I took on my gut feel and sold the option at 1.5933.
Remember our breakeven was 1.5990, that gave me a trading profit of 57bps. You will recall that I wrote an update on October 9th and made the decision to hang on to this option trade alittle longer. Well, the Ichimoku is telling me that this trade has run its course. The payout wasn’t great, a meagre 0.45:1. Let’s not forget that this option cost me 125bps in premiums.
The lesson learnt here is that the markets are getting tougher and more dangerous! As traders, we are taking on more risks, in this case, paying more for options and the potential payout is not commensurate to the risk we are taking. Why? Volatility is high.
When I woke up on Saturday morning and checked what happened in the NY afternoon session and closing……….Wow! By closing of the NY session, the Tenkan has firmly cut up the Kinjun from below, it broke through the cloud from below and also went above the 200 day MA. So, in hindsight it was good that my gut feel prompted me to take profit on the option…………..whew!
You will recall that I bought another put option on the GBPUSD at the strike of 1.6115, with a breakeven of 1.5990 and premium cost of 125bps.
I really thought we were going to lose on this option as well. Lady Luck has decided to show her beauty, the GBPUSD and the EURUSD has did an about turn southwards starting today and the current spot is now at 1.5938, so I am 52bps in the money.
Should I take profit now or wait it out alittle longer? The political turmoil in the US surrounding the coming debt ceiling deadline on October 17th is so so unpredictable. Should I just take profit, since, it is on the table or wait?
The 4H chart shows that the Tenkan cutting down on the Kijun, and we are now below the cloud. The cloud is declining and so the is Chkou. We are near the 200 day MA of 1.5873.
Decisions…………decisions………….decisions………….however, based on the technical analysis alone, I will stay with the option for alittle longer, but I am going to be following the news like a ‘hawk’.
Tonight’s FOMC minutes at 2am Singapore time and 2pm NY time, may take away support from the USD, as the Fed didn’t taper like what the markets were expecting in the last meeting. However, if the minutes shows that the Fed is sensitized to the economy and wants to make sure it’s growing from strength to strength which is isn’t right now, then, it should be positive USD.
I am born in the Year of the Tiger.
The Panthenon Investment Group 