ATMP trade ideas
Risk Parity - Finance lesson 1 Warning Long Macro Post ahead!
The aim of this post is to open the discussion on risk parity and add insight into why some of the largest macro funds in the world use the strategy of risk parity .
... It is basically an asset allocation concept.
-> At what point do we have our portfolio 100% in these really safe securities (safest of all is inflation protected securities... which are bonds issued by sovereign entity without inflation return) Yields are very small.. sub 1% usually.
-> Then you have normal bonds, these can be any kinds of bonds . They don't have to be treasuries they can be corporate bonds.
-> And then you have mixed portfolio , which is maybe 60% stocks and 40% bonds...
-> Or perhaps a really risky portfolio with 100% stocks
-> Or EVEN riskier with 100% Emerging Market Equities .
+++++ The question is what kind of returns do we expect? +++++
One of the ways people employ Risk Parity is a re-balancing concept;
short Call on VXXsince the shakeout was based on a shorthanded political event, we can speculate on a return to the mean of the VXX down curve
due to the medium volatility in VIX, we can move the short Call to 20 (approx. Delta 15)
if VXX should rise, we would buy back the option and sell it again at 25 or 30 to collect the lost premium
VXX the rsi strength risingThe price v RSI is obviously not in sync. RSI rising huge, and has been, and price just cannot move, but wound up like a spring. This Comey firing could be the beginning of a black swan May - sell in May - event, distractions in the govt, and ripple effects to getting anything positive done, dems and rep fighting again. Bogged down in ideaology, and not getting any practical things done. No tax reform, no health care, gridlock again? Whatever was being priced in the markets will be sucked out, and the June FED rates things is now confused, markets becoming reactive, without earnings to offset the focus.
vxxjust could not pass up this opportunity. No telling what news and rumors come over the next few days or week. These rsi levels are attractive. "sell in May" may apply this year after all, and all those shorts that have covered time and time again, spurring this rally of rallies, just might have their day finally.
Neutral/Bullish trade on VXXWe are at the lows and this trade is a neutral to bullish strategy. By selling the 18/19 Credit spread we make money if VXX continues to go down, however by selling the At the money Put we collect enough premium so that we have no risk to the upside in case volatility decides to explode.
To be more efficient with my capital I am also buying the 13 Put improving my margin requirements by 76% percent and only losing 4% of the credit received.
I collected 1.09 per contract with a 70% chance to close at 50%