Idei de joc

Here’s where the pros see opportunity – in Germany

Here’s where the pros see opportunity.

With the Euro at 1.12 providing significant stimulus to German exporters (especially big caps) and the massive QE providing even more upside, I say buy and hold the DAX (currently at 10500), it will be 12000 before QE is done.

A future on the DAX gives much better leverage – but you can lose everything pretty quickly. Same with options.

Anyway, I think this QE thing that was so much opposed by Germany will turn out to be the best thing that ever happened to them.

Short candidates for the upcoming bear market

The anticipation of the end of QE this month and the start of rate hikes next year has prompted the market to do a correction and has moved volatility into multiple year high territory. This may very well be a multi-year top being formed. And so we should use the current rebound to look at some good short candidates for a bear market.

I have some long bets (mostly AAPL and BIB) and I would like to hedge them using some shorts (put options). My ideal short is:

  • high flyer/close to a recent all time high;
  • has a broken model, or at least losses or an impossible high P/E and PEG;
  • has lost a lot of value during the Sept-Oct correction;
  • as high beta as possible.

So far I found the following:

Screen Shot 2014-10-23 at 19.12.02

The most interesting to me are:

ETFC – E-Trade is an online broker that will fall quickly when it won’t be profitable for retail investors to be long in the market anymore.

TSLA – Apart from their bet on self-driving cars (which is still a number of years away) they don’t have much growth coming, are still not profitable and overvalued. They fell a lot in the recent correction and even Elon Musk publicly admited that they are overvalued. I still like their vision and I am very sorry for listening to Cody and not betting on them at $77 as I wanted to. But now they must come down to Earth, especially in a bear market.

EBAY – Just pleased Icahn and decided to spin off PayPal, which is being disrupted by Apple Pay and its value has colapsed. And the online market business is attacked by BABA and AMZN. And they are not profitable. So there.

BABA – A lot of speculators here. And more shares coming to float in the next months. And overvalued, though their PEG is not as bad as Amazon’s. Little history, little insight into corporate governance, so wild card, but I guess in a bear market it will fall a lot.

YHOO – Profitable but overvalued and with low growth, and their only prop is the fact that they still own about 10% of BABA and the cash from selling another 15% at IPO.

LNKD – It’s been around forever, and I never liked it. They sell services to recruiters, but they are not profitable. But it fell already.

SONC – this smaller cap greasy cheap food chain shorted by Cody is priced to perfection while its business model is under attack from the green/healthy food movement. Profitable and with a big short ratio, it may continue to surge for a while.

NFLX – pressured by the cable operators with which they need to partner while they intend to disrupt, and not able to offer latest movies because of its cheap rates, NFLX has lost a lot after its last report and may rebounce a little, but its high valuation will come under attack in a bear market.

What do you think guys? Any edge on these stocks? Any other short ideas?

Evaluating Strategies: Steps

Recently I read a very good book on algorithmic trading:

Building Algorithmic Trading Systems: A Trader’s Journey From Data Mining to Monte Carlo Simulation to Live Trading…

The book is an easy read and it was very eye-opening for me. It outlines (and justifies) the process of building and testing strategies that use technical analysis to guess the most probable outcome for the future.

From the author’s experience, it takes around 100-200 trading ideas to yield one tradable system. Ideas can be as simple as „Buy Monday” (buy Monday at open, set a stop loss at x and sell Monday at close – to speculate the addiction of investors who could not gamble during the weekend and will come looking to buy during the first day of the week) to as complex as employing a dozen technical indicators and chart patterns, set up complex trendlines, wait for multiple confirmations in agreement etc. But in general keeping it logical (based on clearly explainable patterns) and simple is the best way to avoid curve-fitting.

When testing a strategy on past data, the book makes a very clear distinction between:

  • Historical back testing – almost always prone to curve fitting and disappointment;
  • Out-of-sample testing – better at predicting future performance of a strategy, but still limited;
  • Walk-forward analysis – the most reliable way to quickly evaluate the future performance and optimize based on past data;
  • Real-time testing – best if you can afford to test for a long period.

The steps for testing a strategy are:

1. Preliminary Analysis – based on live data or walk forward analysis, 5-10 years of data and at least 30-100 trades for each trading rule in the strategy, with commissions and slippage (1-2 ticks/round turn for market and stop orders, 0 for limit orders). Important to look at: profit; no of trades; profit factor (over 1, preferably 1.5); average trade net profit; average losing trade; Tharp expectancy = (average $ winners * win % expectancy + average $ losers * lose %) / (- average $ losers) -> should be over 0.1; maximum drawdawn; equity curve (slope – as close as possible to a 45 degree angle straight line; flat periods; drawdown periods).

2. Detailed Analysis – Monte Carlo simulation that generates a large number of ways to rearrange the trades from the past and computes statistically the risk of a total ruin (if more drawdowns happen in a sequence – should be <10%), the median maximum drawdown (<40%), median annual return (>40%), return/drawdown ratio (>2.0) and the probabilities of certain annual returns – and helps compute the account size required for successful trading of the strategy.

3. Incubation – a 6-month period in which a strategy is tested on live data in a paper trading account and results are compared to expectations

4. Diversification +position sizing – on multiple time intervals, multiple markets, multiple targets, multiple contracts, multiple strategies. Diversification helps a lot, if done correctly (i.e. between markets that have as little correlation as possible) to decrease drawdowns, decrease the necessary capital for a portfolio of strategies and thus increase overall return on investment.

In addition, the book and the vibrant market of strategies in TradeStation made it clear to me that discretionary trading based on the trader’s limited memory/experience (i.e. untested strategies) has very little chance to compete with properly tested, fine-tuned and continuously optimized automated systems. No serious runner would try to outrun a Porsche or Ferrari, or even a Kia, and no serious weight lifter would compete with a crane – so why do so many traders insist on playing against the machines that are clearly vastly better at processing huge amounts of data, remembering everything and continuously computing the optimal parameters for the strategies?

iPhone 6 demand and my take on it

I’ve been trying (after about an hour of delay – wtf Apple??) to order from the UK Apple store a number of iPhones for me and my family today, and I watched closely the inventory on all the models.

The iPhone 6 Plus of 128 GB in gold and silver disappeared in a minute or two. Then after another 5 minutes the 6 Plus space grey was gone, with delivery times of 3-4 weeks.

Then, in about 30 minutes also the iPhone 6 (the smaller of the two) in 128 GB has been sold out.

Then, in another 30 minutes all the 6 Plus were gone, displaying delivery times of at least 7-10 business days, or 3-4 weeks.

After a few hours the 6-es were gone as well. Same for the German store.

In the US, you can still get a 6 on launch day, just not the 16 GB gold. The 6 Plus-es are all gone, with further deliveries in 3-4 weeks.


1. Demand is very high, at least at launch, especially for the Plus and the higher capacities. If supply is not significantly tighter than last year (and I hope it isn’t, since they dropped the sapphire glass rumored to have been the problem for the Plus), we should have good launch numbers.

2. By launching two phones at the same time, Apple is repeating last year’s strategy of product portfolio. However, there are some important differences:

– pricing has gone up by 100$ for both 6 vs. 5C and for 6 Plus vs. 5S. This means at least +$80 in ASP and growing markups. Amazing news for the bottomline.

– the lower phone (6) is not an old product repackaged (as it was with 5C which had 5 internals). So the demand for it should be better, especially coming from those who despised the ugly big Android phones until yesterday.

– by having two new products with two new form factors, Apple is pushing its loyal base to order more to be able to use both (one for him and one for her, for example) and/or to upgrade quicker (ok, I’ll take this year the 6 but next year I really really have to take the 6S plus, just to see what I’ve been missing in that huge screen – or vice versa).

3. Tim Cook was just asked in an interview how comes that they’re now copying competitors’ ideas with the big screens. His honest answer was „by design” and “It’s an incredible opportunity for us to switch people from Android to iOS.”. Which it is indeed.

I would very much like to short Samsung right now. And I will also look into buying LEAPs for AAPL next week.