Friday, September 10, 2010

Bookkeeping: Beginning Positions in iShares Barclays 20+ Year Treasury Bond (TLT) and iPath S&P 500 VIX (VXX)

I am going to be using these 2 instruments as hedges to the downside.  Technically they are market neutral i.e. they are not 'long' or 'short' per se, but generally when these rally it means the algo's are selling the market and flooding into volatility or bonds.  So for our purposes they will be marked as 'short' positions.  This week has played out pretty much as planned other than the curveball Tuesday ... the market has drifted upward on almost no news as it is apt to do.  While this week was atypical we almost always start the week with a morning rally so we'll assume there is a gap up Monday and that should take us near S&P 1115... or it might happen this afternoon since everyone knows we surge Monday morning seemingly 90% of the Mondays since March 09.  Then from there it should finally get interesting.


The 10 year bond has finally jumped back to near the 50 day moving average which has coincided near perfectly with iShares Barclays 20+ Year Treasury Bond (TLT) "filling the gap" at $102 as we mentioned we'd be interested in seeing in the weekly summary.   It's taken all week but we are here (or close enough).  I'll begin with a 2% exposure.  If the 50 day moving average breaks, I would assume this would correlate with a break out of this mega range of S&P 1040 to 1130... i.e. it would mean we are breaking to the upside.

iPath S&P VIX (VXX) is a very flawed instrument as it does a poor job of replicating the volatility index... but this is all we really a choice.  A week and a half this was near $24 and no one wanted to buy stocks.  Now everyone is hurtling over each other to buy stocks that are up 20%+ in the past 8 sessions and the VIX has hurtled downward.   The ETF is now within a dollar of lows last seen in April so I am going to begin a purchase program here; I'll start with a 2% exposure today around $18.70.  Again let me emphasize this is a poorly constructed ETF ...

Long TLT, VXX in fund; no personal position


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