Portfolio Update — Shorting AUD/USD and US Equities

I believe the market will somehow correct — mildly at least, maybe something more severe. Consequently, I've opened short positions on junk quality equities (Russell 2000) and, expecting the risk off trade to hit the bubble currencies hard, the AUD/USD (out of the money puts).

Entry points:
AUD/USD = 1.068x
IWM = $79.80


Anonymous said...

How far out are your options, brave man?

pej said...

pretty far: parity.

They cost close to nothing: $0.004, so it was worth the shot.

If I'm right, I cash in a lot. If I'm wrong, I only lose pennies.

Anonymous said...

Surely $0.004 is a typo? Even on a per-share basis there are no options close to parity that are that cheap that I can see. I can, however, see several at or near parity that are around $0.04 on a per-share basis.

pej said...

sorry, the price was for the AUD/EUR put options.

for IWM, I bought puts with a strike of $80

Anonymous said...

Thanks for the clarification.

I should add that I am a dilettante at this, a technology worker by trade with a curiosity to learn about how the mind of a trader works. I trade nothing myself because I'm way too scared.

pej said...

No problem Anonymous.

Fear has be overcome. What do you fear?

And of all the trading blogs, you had to read mine? It's probably one of the most difficult to follow :-)

Anonymous said...

I fear loss of capital, of course. :)

I read your blog and numerous others. Some bears, some bulls, some based on technicals, some based on psychology, some based on value. Some of them are individuals like yourself, some of them are guys trying to attract "subscribers" to pay them a monthly fee in return for tips. The more the merrier.

pej said...

I think as a beginner trader, the turn of event is generally, for 95% of the people:

1- start trading with no understanding of how the markets work.
2- make several wins, which are usually small gains (you know, that fear of capital loss?).
3- then you start to make bigger bets, and bigger wins, until you become overconfident in your abilities
4- you then start making losses, and probably bigger ones than your wins, as your positions are bigger now

Now, here it gets interesting as there are different outcomes:
5a- you consistently lose and get wiped out and decide to retire from this crazy world where "the markets don't do what they are supposed to". This is the 10% who hand out all their capital to the market.
5b- you don't realise you don't understand the markets and that they are not rational, but you make on average no money, but keep on investing. This is the 80% who never make money and hand out slowly all their capital to the 10% of those who are making money.
5c- you understand that you know nothing, get back to your study room, manage risk more appropriately, become a contrarian, start making money. Very few people get there.

One of my friends happened to have been completely wiped out a few years ago, shorting oil when it was trading at $60 — with hindsight you can see how wrong he was! He spend several years working to get back that money. He recently relocated to Singapore, and when I reminding him about this episode, and we were having a good laugh, he replied: "this was an expensive training, but I needed it."

Tiho said...

Haha shorting Oil in a commodity secular bull market. No offense but that is just plain idiotic. Why not buy Oil instead... After all it is a BULL MARKET ISN'T?

So pej which one do you fall into 1, 2, 3, 4, 5 etc etc?

pej said...

These are the general steps that I believe everyone walks through.

I've been through 1,2,3,4 and I'm hoping I'm now in 5c. Although as a student of the markets, you never graduate. You have to study as long as you intend to play in the market.