Macro=Algo

Financial markets and Real economy interoperate to create prosperity in the world. Financial economy acts as a barometer to provide instant feel of the state of the economy. Ted spread is an indicator of stress in the financial economy. High Ted spread suggests markets are experiencing deep stress and low ted spread will tell us converse is true. Real economy indicators like ISM report, Housing sector indicators gives us an indication of actual picture of what is happening in the real economy. Ultimately growth rate, unemployment and inflation are three indicators that will form the base of the economy and base of the financial and real economy pyramid.
Humanity around the world is always in need of goods and services for its survival. In ancient times people lived in isolated corners of the world by living with whatever is available in their surroundings. Once humans evolved from hunting societies to civilized societies where food and other goods are secured tug of war has took place between different societies. In the words of Darwin fittest society survived. Today, we witness similar fight for survival among various countries happening all around us. Countries are scouring across the world for energy resources, cheaper services and production of goods. Technological advancements have helped accelerate this process that started to make the world look more tightly integrated and known as globalization.
Although societies across the world today have global bodies like UN, IMF and other associations to resolve and safeguard rights we still witness extreme poverty, rise and fall of societies. This can be attributed to fact that individual societies operate on policies that can make or break them. For instance, African countries were given aid by western countries are not seeing the light of prosperity mainly because of lack of proper governance policy. These things have main implications for differential growth rates, inflation and unemployment levels in these countries. This differential will become base for the FX market, interest rates and commodity markets. Together these markets will become base for the equity markets locally.
Macro Trading is identifying opportunities in FX, IR and commodity sectors that are arising due to dislocations caused by governance policy. These policies can be like, Quantitative easing policy followed by central banks to fight credit crisis, Chinese and Japanese purchasing of US treasury bonds to keep recycling their dollars obtained by selling their goods to world, famous Mugabe’s printing money to buy grocery items. These brute force acts comes with lot of side effects and macro traders are after these kind of opportunities. Along with macro trading, systematic trading can be pursued where markets follow certain rules.
I call trading style that includes Macro themes with systematic trading strategies macro-Algo trading and if this style is based on mathematical themes, quant-macro-algo trading. Futures, futures options and spot contracts provide suitable vehicles to monetize the themes.

Fisher says economy has long way to go to recover

Review of comments from Dallas Fed:
A very slow recovery
Economy has a long way to go before a clear recovery starts kicking.
Fisher says “A sudden new set of circumstances, easy money seemingly heaven-sent and the short-sighted suspension of time-tested, prudent financial practice led us on the road, not to salvation, but to economic perdition.” To aid this argument fable about a man visiting Episcopal church after getting aid from a presbyterian pastor describes the current economic situation very aptly.
Geo Political factors and Technological factors
End of cold war and commercial reorientation of Asian and eastern European countries has unleashed enormous new capacity for production of goods and services and capped the costs. Technological advancements have created new forces that connected remote corners of the world to trading centers and became source for new place to invest and speculate.
Fed is trying to prevent past errors and of course it acted as pastor earlier and has not stopped from being so.
The Green Shoots (Financial Economy)
Revival of Commercial paper Market
Decline of Mortgage rates significantly
Robust corporate bond issuance market
Invest grade corps premium over treasury has fallen
All measures compared to last fall have improved.
The Green Shoots (Main Street)
New orders index shows rise
Moderations in decline of activity (Fed survey)
Job losses are reduced
Monetary policy initiatives have given rise to these green shoots. Side effects are inflation. But fed is very aware of these facts and taking every measure not unleash the ugly monster of inflation.
So far financial markets have taken these green shoots and have risen from last week. From here where are we headed next week? Next we have GM bankruptcy filing and unemployment report.

WU long straddle

Exploiting volatility spread between Implied volatility and historical volatility. Western union Implied vols falling down once the rally picked up in the equity market. Current implied vols of 40 for aug 09 contracts is at its historical lows. This gives an opportunity to buy some volatility at this level.

WU aug 09 strike: 17, underlying: 16.51, straddle costing 3.1 debit. trade date: 5/24/09. for 10 contracts, net debit will be 3100.

this position will loose if underlying moves nowhere. Time decay will be eating into the premium. Best case for this trade is underlying moving above 20 or below 14. rising volatility will add some more to our profits.

Since this is a long position, this will needs no initial margin requirements.

best trading

regards
Chandra khandrika

IBM condor Option Trade

On april 21st i have decided to play a iron condor option on IBM. I have observed few things. IBM is trading at 100. 10 IBM May options 90/95/105/110 iron condor with a premium intake of 2400 and a risk of loss of 2600 if IBM is above 110 or below 90. So far IBM never breached these levels. looks like a decent trade with minimum risk.

Only one factor creating itch in my back is the trending market. Since March markets entered into a Bull market. No one is able to believe in this market. But market is rallying. Market has moved from the bottoms of 6500 to 8500 today.

Some observations on the trade. This trade is a 5 point Bear call spread and 5 point Bull put spread. This has a width of 10 point range. Implied volatility fell down and benefited the trade.

Now i am on to next trade.

Bye for now

Chandra Khandrika

Option Trader.