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Playing Russian Roulette with Martingales

  • #61
  • Oct 19, 2017 2:34am Oct 19, 2017 2:34am
Quoting Copernicus
{quote} Hi Y..I need to become familiar with trading it (or derivatives of it)....so just need to check out a few things first. I am familiar with the historical low volatility of VIX....but uncertain at the moment of the method to trade VIX and if there are associated holding costs....which would dampen my enthusiasm if there are holding costs cause this insane market could keep plugging away like this till kingdom come. I think R a few weeks back put me onto some brokers who were offering VIX...just need to do some homework first. If you are concerned...
the S&PVIX futures are a part of the CBOE exchange.
the multiplier is $ 1,000, so at $ 11.00, the contract would be worth $ 11,000.
the contracts expire monthly. the margin is quite high and the further out you go, the lower the margin.
for the June 2018 contract you still have around $ 2,300 margin = 21%
no holding costs.

more interesting perhaps is to trade VIX with cfd`s on futures with a forex broker.
as an example the margin at ActivBrokers is 0.25% - no holding costs, which they compensate for with higher spread.
the tick value is 0.05, so I assume most futures will trade with a spread of 0.05/0.10, but ActivTrades has a spread of 0.15.
certainly not bad seeing that you would trade the odd time to build a position.

I certainly wont buy any commodities which are not close to their historical low.
Look at oil in the financial crisis in 2008: down from $147 to $33 a barrel.
I think you`re better off to wait until the sxxt hits the fan. oil will go a lot lower than the $ 52.00 it is now imo.

generally we should be looking at 2008 for what to expect.
  • #62
  • Edited 3:24am Oct 19, 2017 2:41am | Edited 3:24am
Quoting yonnie
{quote} more interesting perhaps is to trade VIX with cfd`s on futures with a forex broker. as an example the margin at ActivBrokers is 0.25% - no holding costs, which they compensate for with higher spread. the tick value is 0.05, so I assume most futures will trade with a spread of 0.05/0.10, but ActivTrades has a spread of 0.15. certainly not bad seeing that you would trade the odd time to build a position.
Thanks for this Y. The CFD derivative on the underlying future is right down my alley. I will check it out :-)

I am most likely going to make a play on Nat Gas with a bit of coin. It is stacking up quite nicely. The question is do I play the grid and potentially get to a position size of >10 lots with averaging down or do I simply come in hard with 6 lots with sufficient capital to take me to $0 if necessary? I am at that 'fear of missing out stage' of decision making. With a hold of up to a year or so....it is likely that we will see an equity s***fest during that period....and even if there is not much upside the grid would be the safer option....decisions....decisions.....

It might be a good long term play for your superannuation. More info here.

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  • #63
  • Oct 19, 2017 9:07am Oct 19, 2017 9:07am
My final conclusion is that martingale is not a good option unless you're a bank with unlimited funds

I'll stick to my diversified approach forever and ever.

adios!
  • #64
  • Oct 19, 2017 4:29pm Oct 19, 2017 4:29pm
Quoting Copernicus
{quote} Thanks for this Y. The CFD derivative on the underlying future is right down my alley. I will check it out :-) I am most likely going to make a play on Nat Gas with a bit of coin. It is stacking up quite nicely. The question is do I play the grid and potentially get to a position size of >10 lots with averaging down or do I simply come in hard with 6 lots with sufficient capital to take me to $0 if necessary? I am at that 'fear of missing out stage' of decision making. With a hold of up to a year or so....it is likely that we will see an...
hi C.
must admit I`m surprised with your targeted TP of 9.624 for Nat Gas.
only got there 4x in the last 20 years and not since December 2008 = almost 9 years!
did you research the reason why the price went up that far those 4 times?
strikes, broken pipes or ........ and will that repeat itself in the future?

I`m no fan of buying Nat Gas so far from its historical low of $1.61 for a long-term hold.
what is your reasoning for doing that?

I certainly wouldn`t go the martingale way. Like you said, your initial position would have to be small
and that can be a disadvantage as you pointed out.
If adding on I would keep to the same position size throughout.
I only see an advantage with martingale if you want to get to BE quickly to exit the trades, but that is not your purpose.
  • #65
  • Edited 5:54pm Oct 19, 2017 5:35pm | Edited 5:54pm
Quoting yonnie
{quote} hi C. must admit I`m surprised with your targeted TP of 9.624 for Nat Gas. only got there 4x in the last 20 years and not since December 2008 = almost 9 years! did you research the reason why the price went up that far those 4 times? strikes, broken pipes or ........ and will that repeat itself in the future? I`m no fan of buying Nat Gas so far from its historical low of $1.61 for a long-term hold. what is your reasoning for doing that? I certainly wouldn`t go the martingale way. Like you said, your initial position would have to be small...
Hi Y

Mate it is a long term play based on an outlook comprising the following:
1. Qatar reducing production of LNG over time as competition builds in US and Aus LNG production;
2. It provides a transition for the global coal industry towards 'greener targets';
3. OPEC countries will progressively transition to LNG from oil over time;
4. The counter-cyclical nature of commodities to equities (which is a primary driver);
5. The progressive collapse of Western capital dominance against China, India and emerging markets which is likely to destabilise western economies leading to significant price dislocations in energy prices.

Here is a good outlook from the NAB regarding LNG but focused on Aussie LNG....still it paints a picture.

You will find that the price activity between 2000 to 2008 is a pretty good indicator of what is to come when the next *****fight hits and central banks are not in the same capacity to stem the flow of the tide like last time.

Whether it happens this year next year or in 2-3 years is not really the issue. My plan is to park idle capital otherwise earning a paltry 2-3% into commodities (under a degree of diversification) with no holding costs and just patiently sit on my hands while focusing on cashflow generation elsewhere. The profit target is just an indication of where I think it could go in short order....with say 6 rainy day trades in play across soft commodities and energies, the game is in managing your capital as opposed to strictly sticking to the profit target projections.

The outlook for me in relation to soft commodities and energies with a growing worldwide population and economic turbulence is all upside, provided you take the windows of opportunity in advance and simply wait it out :-)

I am not necessarily seeking to pick the bottoms or the tops....just a realistic expectation of the guts of the anticipated move....so while we may not have reached historic lows in commodities....they are relatively low in comparison to history. Picking the bottom is like finding a needle in the haystack as if you miss it then all your effort is wasted on a paltry position size...hence the decisions I am facing now in relation to whether I average in to the positions or come in boots and all. There is a balance in there somewhere such as another single averaging down level as opposed to say 4-5 etc.....which I need to look into a bit further.

PS A couple of the big boys over here in Aus like Santos are also of the same opinion and heavily investing in LNG as we speak.
  • #66
  • Oct 20, 2017 1:42am Oct 20, 2017 1:42am
hi C.
thank you for your detailed reply.
I agree that Nat Gas has a bright future, but I don't see why that would increase prices.
producers like Santos, Shell etc will just pump more of the stuff when demand is higher.
wishing you a lot of success with your venture.
  • #67
  • Oct 21, 2017 1:43am Oct 21, 2017 1:43am
Quoting yonnie
{quote}ActivTrades has a spread of 0.15. certainly not bad seeing that you would trade the odd time to build a position.
however to roll over to the next monthly contract will be quite costly.
suppose you have to wait 2 years after buying your contracts @ $11.00 for a lot of volatility: 24x roll over @ 0.15 spread = $ 3.60
suddenly your average price is $ 14.60!
  • #68
  • Nov 13, 2017 12:01pm Nov 13, 2017 12:01pm
I looked into VIX a bit more and trading it for the longer-term can be quite costly.
every 30 days the front futures contracts expire. no surprise here.
what is a surprise is that the VIX futures act like options, because there is time decay.
VIX 15 November futures, which expire tomorrow, are now $ 11.40
the price of VIX 15 December futures are now $ 12.45
so you don't pay only the spread every month with rolling over the contract to the new month,
but also a time decay, in this case $ 1.05 per contract.
  • #69
  • Last Post: Jan 13, 2018 8:09pm Jan 13, 2018 8:09pm
Quoting yonnie
{quote} however to roll over to the next monthly contract will be quite costly. suppose you have to wait 2 years after buying your contracts @ $11.00 for a lot of volatility: 24x roll over @ 0.15 spread = $ 3.60 suddenly your average price is $ 14.60!
Hi Y. Sorry mate....I missed these posts probably because of frolicking too much over the festive season. Have a look at CFD's on the underlying commodity such as the offerings by Pepperstone where there are no interest holding costs. This avoids the issue you raised regarding futures rolls. I hope you had a great New Years :-)
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