While ICE is in an upward trend, it might make sense to hedge for potential fallout from trading losses due to the spike in energy prices
"After the market closed Friday, stunned traders scrambled to work out how much additional funds they would need to set aside for the following week. Some trading houses were extremely nervous. An executive at one said he was worried that some counterparties could go bust and leave his firm with positions to fill on the spot market."
Energy Only Revenues to ERCOT Generators in 2021 YTD exceed all revenues 2018-2020 combined. So who's paying for that? In addition, this also concerns Natural Gas as well
Maybe some counterparties will get into trouble...
And yes, ICE has a large clearinghouse and owns multiple exchanges. Still, remember the trader that blew a €100m hole in Nasdaq nordic power market. Ok, the guy was clearing his own trades, so that might not have happened with clearing houses in between.
https://www.ft.com/content/43c74e02-b749-11e8-bbc3-ccd7de085ffe
Anyway, OOM puts are still cheap. 1 month 5% OTM skew is only +2.5 vol for puts over calls (IV 26.6 vs 24.1). So I will consider getting into 19 March expiry, Strike 105. Alternatively buy 105-100 Put spread for March at 40 cents premium, 5 max payout (buy the 105 strike at 28.5 vols, sell the 100 strike at 32.2 vols). The put spread seems pretty stable at costing 40cents a month historically.
As always, this is only a trade idea, no investment adivce. You have to do your own research before implementing any trade.
Closed the trade. Went into the right direction for the wrong reasons but my main idea of energy traders defaulting didn't happen. Maybe it wil still happen, but I think chances are slim given that we have heard nothing of the sort this week.
Trade stats: Bought 30 puts (Strike 105, maturity 19th March) on Monday at 1$, sold today at 1.25$ for a realized PnL of €731. I didn't do it in the TwoQuants portfolio but my own small "fun" portfolio. No super strict position sizing there, no need to be totally disciplined. Having that part of my allocation helps me to be very systematic with the other things I trade.
Call me crazy- but seems that a successful trade has very little/nothing to do with the market, and everything to with position sizing and risk discipline... insane I know
I applaud you for acknowledging the “right for the wrong reasons“ - I’m 100% serious when I say that I think you’re the first (and prob only - EVER) buy-sider I’ve ever seen do that
Nice trade idea!
@Weston Nakamura First ones are sharing their losses https://financialpost.com/pmn/business-pmn/just-energy-forecasts-250-mln-loss-from-frigid-weather-flags-going-concern-doubts
It also doesn't help that there is talk about the Tobin Tax again and ICE has its longest loss streak in 12.5 years. It's sitting on the 50day MA now
by the way this whole space of retail serving / exploiting brokers, exchanges, fin services etc that I know you have very close eyes (as do i) is very very interesting right now. so many different facets and factors, will see intra-sector dispersions. Take a look at Money Group (8698:JT) today
Very interesting, thank you. Some of them are currently getting a little bit pressure due to being high beta and the slight correction. Similar to what you mentioned the first time I posted the idea, while everything was still on the up move. For some of these exchanges that had also to do with the fact that a larger dividend was expected after the record year 2020 (and record first month), but most of them took the opportunity to strengthen their balance sheet instead of paying out.
Yea that makes sense. or, to NOT do that and pay out to shareholders instead, at a time when the likes of Robinhood & nat gas traders are blowing up because they can’t settle “black swan - sigma” event trades would be incredibly incredibly irresponsible.
But right now they’re getting the best conditions- burst of retail activity + steepening curve, and then if you’re a Monex type with crypto capabilities as well, your shares are parabolic. The problem is, all of those support factors are reversible in one flash of a moment.
I've been thinking about how to play this!! And for the sake of making a market (no pun intended), I wanted to take the theoretical "other side" of this vs you. But I can't sell you puts on ICE lol. I was thinking maybe I'm long / you're short ICE single stock cash, say 1 month, but I don't want to do that either haha.
Will you sell me NDAQ Nasdaq Inc (not the index) shares instead? I'm not bullish the overall market so I can't really go Long anything, cause you'd win that based on broader index price action. Need to relative val. How about:
Weston Long NDAQ / Short CBOE
Moritz Short NDAQ / Long CBOE
stopped out when at net +/-5% spread
(so essentially if Long NDAQ / Short CBOE relative return hits +5% first, close out and I win. If Long NDAQ/Short CBOE hits -5%, close out trade and you win - this can take 1 day or 1 quarter or more.)
AT MARKET. DONE??
I'm usually in for relative value trades, but I have no real view on CBOE either. But you can do that on market!
Done! Will come back with the open print fill. Pleasure doing biz as always! (Getting shuddering memories haha)
I need a two way quote on that!
Im stopped out earlier- you win, CBOE rally ripped my face off
Luckily Fedwire is down, so my “check got lost in the mail” and therefore no funds will be paid 💸
Thanks for tracking. I have the ICE puts still open. Went up a bit in between due to general market action, but not the event I'm waiting for. Let's see how it plays out. Since I'm not bearish on ICE in general I won't keep it forever and just pay the premium for curiosity.