As I stated in a different post, I wanted to hedge part of my short NQ position and I thought this 3 year chart of ES-2NQ was interesting. Even though I think both are overextended, ES-2NQ is at the lower end of it's range. By buying ES versus the short NQ position I am hoping to hedge myself against further increases in NQ but gain if the relationship reverts back to the mean. I went long ES at an average of 1314.75 last night which was near the high, and this position is losing now but the overall position is improved as NQ has also come down a bit from it's highs last night. If bonds increase I plan to add a short there as well as an additional hedge.
Just an observation, if I'm correct I think your original trade was a short ZB, short NQ position, which itself was intended to be a hedged pairs trade. But I think you took off the ZB and stayed short the NQ, which changes the trade and adds risk as you no longer have your perceived hedge.
ReplyDeleteSo NQ didn't come in as planned and now it looks like you're chasing a bit by re-hedging your original hedge. I think the original pairs trade made sense and maybe giving it more time to come in as planned or just closing it out if it didn't work as desired would have been better than trying to leg out of a pairs trade.
I've done this myself and I know that if NQ did come in you would think it was a good leg out, but I think repeating that methodology going forward just leaves yourself open to bad mechanics.
I just checked the charts for today, wow on the 2.5 point ZB move. Were you able to short in to that? I doubt if I was watching live I would have had the courage to do so. I would probably be thinking to wait until another 144 handle or so.
ReplyDeleteYeah, I got out of ES yesterday and got back into ZB yesterday and today, so now I'm back to short NQ/short ZB. I think the logic of the long ES is still okay though and I may still put it on at some point because it does neutralize NQ to some extent which ZB does not always do - and it is still my opinion that as long as I can stay in the game, I will have a chance to be right (profitable) at some point.
ReplyDeleteI haven't gotten back in ZB yet, not really sure what my desired entry point is from here so I'll stay idle until I figure that out.
ReplyDeleteJust re-established my long ES position at an average of 1312.3125, which is a better level than my previous ES position of around 1315. Purpose of this as before will be to partially hedge NQ, and will use a couple of the contracts for short term day trade if possible.
ReplyDeleteAs usual bought my ES position too early and it was a loser for much of the day. However I did manage to sell a few of them into the rally in the afternoon for a couple of points profit and reduce my cost basis on my remaining ES position to 1310.67. Now if bonds would just cooperate...
ReplyDeleteWith the FED saying they will leave rates at 0% to 2014 now and we haven't seen any inflation yet, I can now understand the 30-yr at these levels. The risk/reward still favors the downside, any whiff of inflation and ZB will drop too fast to get out if you're long. I think I'll stick to taking my shots on shorting near the highs and just wait to be right if it continues on to new highs.
ReplyDeleteHad orders to sell my ES position above the market last night and most of them hit between 1316.50 - 1317.50. My highest order at 1317.75 did not hit so now I'm down to just 1 ES.
ReplyDeleteWas not expecting ES to be up again overnight but left an order to sell ES for 1317.25 and it filled overnight so now I'm flat ES and back to just short NQ / short ZB, with a little bit of overweighting on the ZB side. Those are both losers for me at the moment but at least they moved in opposite directions overnight.
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