A 2011 recap using PFG’s trading indicators - 2012 - Buy shorted dated vol, get ready for risk-on via XLF and EEM.
If 2012 brings a “risk on” moment via the elections, we could see money move fast into XLF and EEM. We will be setting up the trade via upside baby calls. If we get nothing, our 2013, 2014 short vol positions should pay us and a whale event will get caught in our long gamma positions. It feels ok to pay a very little decay in 2012, which is something very rare for us.
1. 5yr EM vs DM and lookback vs owning gamma looks to have little downside (right to left) - Buy short dated vol/gamma. Term Structure also at an extreme level to be ok short vega
2. EM de-risking and risky duration, what will get money away from UST and back into risky assets? - This will be a big trade in 2012 for risk-on
3. Will 2012 Elections bring a bid into financials with a republican outcome?
4. Will correlation continue to stay high?
5. Another support to own short dated vol, we entered into SPY Jan upside when the indicator was flashing 6. Our options doubled in price, vol boomed and spot level is now ~5 (inverse to vol moves) - can it continue?