Monday, May 14, 2012

Battle Station!

Some of us have been talking it over, and here’s what we think the end game looks like:
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.
3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.
4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:
4b. End of the euro.

Food for thought. Sentiments supersedes all fundamentals. Reduce equity weightage if you are fully allocated. I'm 12% in equities and am not reducing my weightage. Probably will increase my VXX position (avg cost of $17) if the scenario played out.

Risk/Reward for the VXX trade is around 1:18. If it ever goes to august 2011 low and theorectically , VXX can go to $55, this will be a 300% return. If nothing happens and VXX slumps back to $15, it will be a -12% drop(and I may get rid of it).


Wealth Journey said...

Took profit on vxx today at 19.7. Make 11% less compAred to last night.

Anyway, might take up position again tomorrow depending on outcome of euro mtg.

Wealth Journey said...

Bought VXX at open 21.17. Will average down if it goes down.. Average up if it goes up..

This trade is damn fun during volatile period ! :0

Wealth Journey said...

Avg holding cost now at $20.5. I feel the market is leading to a climax soon .. everyone is aware of what is happening and the consequences. The bank runs and spanish/greece exits are being talk about in more frequency on the mainstream media.

Wealth Journey said...

Again missed the climax last friday at 22.88.

Anyway, sold my VXX today at $21.50.
Now , i'm having seller's remorse..

Hopefully, tomorrow VXX will be at a lower level for me to buy.
Going to sleep..

Wealth Journey said...

Opened a VXX at $19.30 yesterday night.

Looking to add more next week.

Anonymous said...

With hind sight, you have got it all wrong. Glad to be reading this in Dec.

Wealth Journey said...

Guilty as charged :)
But the market did drop from May to June, just not to the lows of 2011 august.

Anyway, I came away with some profit from the trades. Not too bad.