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Expat finance professional living and working in Hong Kong.
  • February-14

    My apologies for skipping February. I did not have much time to post about such an interesting month. We saw multiple rallies in coffee, wheat, cocoa, oil, soybean complex, corn... The whole month was a crazy bulls party. I was absolutely unprepared for that and not only missed rally but also tried to counter it and was beaten. My options portfolio returned second monthly loss during last 12 months.

    Lessons learnt:

    - when selling options do not sell during last month. Yes, theta expires fastest but premiums are low so you can't sell options far out-of-the-money and collect decent premiums. I was usually taking risky bets like 4-5% out-of-the-money and once it became in-the-money I opened futures position to offset the loss and closed it once option ran back out-of-the-money. This strategy worked quite well when markets were flat or when markets moved strongly in one direction. But in volatile months like February options changed status every couple of days. Guessing final price vector became impossible so I had to buyback options and book losses in several occasions.

    - study fundamentals before watching technicals. I relied too much on technical analysis and it backfired on me. Do not really want to elaborate on that simple fact. I earned too fast too much with technicals and loosened the grip on fundamentals. This is something you cannot do.

    Good thing was that I was not overtrading and kept my margin safe so even when heaven fell I did not die and keep my spirits high.

    Mar 12 9:49 PM | Link | Comment!
  • My January-14 Strategy Review

    OK, let's review January performance:

    Wheat was a loser in January as predicted.

    Calling shorts for rice and oats was a wrong move but remember I said I did not want to play with them. So I did not and this false call did not affect me. In fact I dislike rice and oats markets - they are too small and too unpredictable.

    Cattle rallied in January so my hesitations were not correct. At the same time hogs were very stable during January and historical pattern did not happen as I anticipated. I currently have short strangle position in hogs and hoping for further price stability.

    Copper lost alot in January. I warned not to buy it.

    Palladium - seasonal pattern held true this year - buy palladium during last days of December and sell at the end of January or early February. This year rally started around Christmas and finished around 20th of January. This was a nice bet.

    Cocoa - I called shorts long time ago and market was bullish no matter what. I closed my short position during first days of January when prices slumped. It was luck cause that drop did not last long.

    Generally, the first month of the year is known for its optimism. Also, it is the month when funds rebalance their portfolios so plenty of strong moves were around. I finished this month on positive note but there is not too much to brag. OK, moving into February!

    Feb 02 10:47 PM | Link | Comment!
  • My January-14 Strategy

    OK, let us start 2014 with the following trade ideas:

    Wheat, Rice, Oats - these three commodities show strong historical tendency to decline in January. Wheat has been a loser for last few months and I do not expect it to recover any time soon. At the same time I do not expect it to drop too much either as it has taken much damage already. OK, there is no such thing as rock bottom but funds short wheat aggressively for last two months so most of the damage has been already caused. Rice market has been down for last couple of weeks already so the trend is on the move. How long will it last? I do not know and I do not have big heart to short this market because of its small size and high volatility. Same applies to oats - although market is overbought I want to wait a bit longer before deciding if I want to jump in.

    Cattle and Hogs - these markets tend to show positive returns in January. However I notice that funds accumulated a substantial long position in live cattle already and this may be a sign of coming bloodshed for unaware bulls. For hogs I am not convinced that historical trend can be applied this year either - recent decline in prices is not finished, funds still have lots of hogs they may want to sell in their portfolios. Recent Hogs and Pigs report shows a slight decline in inventories, 1% in almost every category but I do not think this can revive bullishness and we may see further decline in hog prices.

    Copper - January is seasonally good for copper. I think this is linked with new year optimism. There is plenty of good data coming from almost every source but somehow I do not believe it. We know that governments have not shown how they want to solve state debt and deficit issues and we may have new Greece any moment just like we had Cyprus. it is not me being a stubborn contrarian, it is me holding longs in copper in 2013 when Cyprus happened.

    Palladium - buying palladium during last days of December and selling it in the end of January or early February worked almost every year during last 30 years. In fact this is one of the strongest commodity cycles I have seen. I am long palladium.

    I like to listen to what people like Jim Rogers, Marc Faber, Nouriel Roubini say. Couple of years ago all of them mentioned that 2013 and 2014 would difficult years as major problems of huge debt and underregulated financial markets were not addressed. 2013 was a year of new highs for Dow Jones but I cannot recall any big movement in unemployment rates. Situation improved marginally. At the same time new highs of stock market could be just another bubble caused by free cash flowing from QE3 and tapering of QE3 may blow this bubble and expose same old issues - too much debt, too much money flowing into speculation, too little attention to real sector. Someone also said that booms in commodity markets are caused by booms in economy. This is obvious - if the World needs more oil and copper than more players will come to these markets. But I read articles about outflows from commodity funds. More than that - even big banks are selling or downsizing commodity trading units. This is not a rosy situation. So I'd rather keep my "bear mode" on.

    Jan 01 10:28 PM | Link | Comment!
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