Thursday, January 26, 2012

Will I ever learn? + Iran x Israel

Ladies, bear with me if I sound confusing or don't spit out detailed info, but I've been working like a dog studying new things, new ways that I can try to make money. It's 1h51am and bed is calling. A quickly-written post:

So today Ben BearManQE let the horses out. Again.
And the market rallied some good 10+points.
Crude Oil rallied.
Metals exploded.

Some very interesting weekly charts are the SPX Index, breaking to the upside..
And the CRB Commodities Index (CRY Index on Bloomberg), doing the same.

So what is going on? I thought it'd be a good idea to short the SPX through futures @ 1307 [ESH2] considering some factors:
- It's failure to break this downtrendline on the weekly charts... twice.
Then came another day...
- It's failure to sustain the upward movement it made yesterday during after-hours due to Apple's incredible result
- And today we got the Fed selling puts that increase in maturity as time goes by.

As I mentioned before.. No love for this position. Just trying to trade in-and-out a bit instead of leaving a static bear portfolio overall.
Some ideas that spring to mind now are: shorting Brent or WTI crude time-spreads, but the NYT isn't helping me much.
There crude oil curves are awash in middle-eastern risk premium and I've mentioned before that I like to collect these when they're available, "laying around". It was the case with missing the Italian 6m CDS short @ 412bps bid (or same tenor Argentine ~ 800bp! Much better debt structure than Italy, but runaway inflation and insane politicians). Now, in crude-space, we're watching supply glut from a rise in production in the US (Hail there, North Dakotans!), refinery shutdowns due to backruptcy and maintenance and, despite high product margins in certain areas, the oncoming slowdown in activity and extreme austerity could prove some weakness in demand. Did I mention that crude is hovering 100 USD/bbl WTI + 10USD/bbl to reach Brent's price? What a hit to activity and no one has been talking about this. OTM high-strike calls are more expensive than opposite site puts... so what should we do?

Piece of the piece:
As we spoke, however, Barak laid out three categories of questions, which he characterized as “Israel’s ability to act,” “international legitimacy” and “necessity,” all of which require affirmative responses before a decision is made to attack:
1. Does Israel have the ability to cause severe damage to Iran’s nuclear sites and bring about a major delay in the Iranian nuclear project? And can the military and the Israeli people withstand the inevitable counterattack?
2. Does Israel have overt or tacit support, particularly from America, for carrying out an attack?
3. Have all other possibilities for the containment of Iran’s nuclear threat been exhausted, bringing Israel to the point of last resort? If so, is this the last opportunity for an attack?
For the first time since the Iranian nuclear threat emerged in the mid-1990s, at least some of Israel’s most powerful leaders believe that the response to all of these questions is yes.
(...) and it goes on....
A nuclear Iran announces that an attack on Hezbollah is tantamount to an attack on Iran. We would not necessarily give up on it, but it would definitely restrict our range of operations.”
At that point Barak leaned forward and said with the utmost solemnity: “And if a nuclear Iran covets and occupies some gulf state, who will liberate it? The bottom line is that we must deal with the problem now.”
He warned that no more than one year remains to stop Iran from obtaining nuclear weaponry. This is because it is close to entering its “immunity zone” — a term coined by Barak that refers to the point when Iran’s accumulated know-how, raw materials, experience and equipment (as well as the distribution of materials among its underground facilities) — will be such that an attack could not derail the nuclear project. Israel estimates that Iran’s nuclear program is about nine months away from being able to withstand an Israeli attack; America, with its superior firepower, has a time frame of 15 months. In either case, they are presented with a very narrow window of opportunity. One very senior Israeli security source told me: “The Americans tell us there is time, and we tell them that they only have about six to nine months more than we do and that therefore the sanctions have to be brought to a culmination now, in order to exhaust that track.”

I am thinking about selling ATM calls (shorter tenor, higher theta) to fund multiples OTM calls or call-spreads while shorting time-spreads. If Israel strikes Iran I expect at least +20 USD/bbl in a matter of days. Lybia produces not even half (got to check later this) of what Iran does... and Perhaps Lybia/Lebanon could join Iran fighting back.. so... A parabolic move, very fast, could go so fast that the loss from the short-ATM-call would be dwarfed by the multiple-calls longs.
Got to check the math.

In the mean time I believe the bearish portfolio would perform well if war hits the fan.
Food for thoughts. Again, interesting times.

Bernanke... I have a hard time learning that markets go up when you let the money spigot on.
But I am more humble not to add to a losing position and am thankful for levitating prices in other securities so I can try to short them some day, 2015 or so.

The Tail Chaser

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

No comments:

Post a Comment