Under the Sea

2020-05-21 | Jack Roberts

When one ventures down to the ocean floor, what does one see? Maybe an octopus, some really rad neon fish, the occasional shark, definitely a coral reef or two. Maybe a mermaid if you’ve been drinking the sea water. Mainly the idea is that everything is pretty much living in synchronicity, a certain harmony if you will. In this world of cause and effect, in combination with these creatures doing the best they can to survive, you’d think that most of these creatures (yes even the coral reef) have picked up some habits and some daily routines along the way. One way of survival is finding what works and recognizing the correlations that make it work. The octopus lives in a cave and comes out everyday to hunt it’s familiar territory, the shark finds the warm water and continues its migration, and the coral opens and closes everyday to attract its own food as well. Pause, if your first inclination was to attach these creatures to the financial markets, you might either be a savant or an options trader. So come on you savage creatures, let’s go swimming in the underworld that is 2020.

The Fed, if you can imagine, is the octopus. With its slippery chromatophore layered skin can shift its tune depending on the situation. It can come and go as it pleases, and it can print money out of thin air (I guess this would be ink from the octopus to save itself to live another day). The shark is the hedge fund, just doing its thing, and when it’s hungry it eats, all the while it entertains the little fishies around it and continues its lavish lifestyle. The coral reef is your general stock market. It’s where it all goes down. Where transactions are made, and where the party is. In late-February early-March, things got shook up. Correlations that were once tight have loosened. The Fed can now just digitally print money and send it out with trillion dollar legislation (whatever that means) and nothing is rational or makes any sense right? Right!

One thing that I follow closely is things happening now that will affect the future. I mean big ideas like working from home, a VERY possible universal basic income, bitcoin and other digital assets, the upcoming commercial real estate crash, the evolution of Tesla and how Elon Musk is drastically changing the way you will live. You get the picture. The obvious takeaway is that to a certain degree nothing will ever be the same, socially, financially, and of course – in the professional workplace (though, as an introverted daytrader I’m certainly not complaining). So let’s talk about how this ocean bed got stirred up and what happens when it settles. In other words, where’s the flight to safety when all you got are the tools for trading and an influx of irrational movements in the markets!

I will say out of the gate I’m not a fan of gold, as a hard investment nor a vehicle for an assumable edge for trading it. Trading gold is like depending on the correlation for TLT and equities in 2020. I absolutely am a huge believer in a cashless, safe and verified (not just “trusted” i.e. big banks) transactional society using cryptocurrencies. Trust me folks, you’ll be grateful for cryptocurrencies soon enough, I guarantee it. In the future, using a physical dollar to pay for something will come along with a tax. Your Starbucks may be $7 instead of $5.50 upon payment for your luscious Pikes Peak light roast when paying with a dirty, virus infected dollar bill. Sectors that I feel that have been giving us the most edge are semi’s, streaming and gaming, and of course your high-flying honey badgers with huge short interest floats. I’m doing a lot of observing and working on implementing non-directional strategies like long straddles and/or very wide butterflies as hedges, it’s really that simple for me. It’s been a long five months already and grey hair at the ripe age of thirty four is a little concerning – a direct correlation to the insanity of the markets.

So guess what you can do to defend yourself? Watch your position size, don’t hit home runs and be extremely mindful that correlations in trading that helped you gain an edge before, are shaky and unreliable at best. Now, there are still some good ones like currencies, and playing transports (IYT) to the downside in the current global environment. The point is, it’s a short list, so feel free to swim, but define that risk! I do believe we are about to take out our previous highs, yep I sure do. The second half of this year will be just as crazy as the first, do you remember that we are in an election cycle? The world is crazy right now, and if you’re a new trader, please please please, “be the electric eel”, stay nimble, be quick to act on a well thought out plan, defend yourself at all costs and ruthlessly! Hunker down and observe the surrounding market, you can learn a lot from a coral reef.

Finishing thoughts, at some point there will be another correction, heck we might even get a weak dollar, who knows. The point is I’m simply displaying how crazy things are, so while I’m frequently depositing money in my crypto account, I’m supplementing my life with micro-futures trades in the morning and afternoon. It’s a low capital requirement, doesn’t really lean too heavy on stops, and can be fun for exercising your discipline muscle. Not to mention, who doesn’t love an extra (and sometimes easy) potential $200 a day! In my next blog, I’m going to reflect on how all this unravels. We’ll see just how wrong I am. In the meantime, it’s all very fishy.

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