September 23rd

Sometime you come up dry, no inspiration for the blog, no inspiration for new trades.
Risk/reward is not in balance. We move down, we break important levels, but sometime this week Washington signs off on the deal and we are up 40 points. Not a market for a Theta Positive traders.
I wish I had know it in advance, I would have stayed on my Island in the Carribean.

I watch the senate hears this morning. I seems to me that some of those gentleman have really no clue how big this thing is.
The CDS market is like us "playing with option" but then in a system that doesn't hold margins and with only a few issueing counter parties.

In the CDS market it is possible to make good on one end of your spread, while losing on the other end of your spread. Sounds familiar doesn't it. The difference is we option traders, by the rules of the CBOE, are sure the counter parties have the moneys to pay us out when we close the winning side. In the CDS market there is no such thing.

So Company X is in the money for a couple of millions with counter party A and down a couple of 100K with counter party B. Next morning they wake up counter party A is in liquidation. Profit gone and they still hold the IOU for the losing trade to counter party B. If this happens to often company X will fall and here goes the house of cards. Leh could fall, AIG had a lot of naked CDS contracts on the books. To many companies X would have seen their trade go wrong.

Be carefull, no adventures