12/26/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

1.2%	1.8%	0.2%	10.2%	37.7%

2007 Review

Here is a review of 2007 trading results:

Jan 2007: 5.6%
Feb 2007: 2.4%
Mar 2007: -15.0%
Apr 2007: 9.8%
May 2007: 5.8%
Jun 2007: 4.9%
Jul 2007: 10.0%
Aug 2007: -35.0%
Sep 2007: 12.0%
Oct 2007: 1.8%
Nov 2007: 9.4%
Dec 2007: 13.4%

Simple Average Total: 25.1%
Exponential Average Total: 13.3%


The index gambling trading started as usual this year. However,
the market soon had a very large single day drop on 2/28. This has
directly caused the 15% loss in March. It took two months (Apr & May)
to get back what had been lost in one (March).

Trading during the next two months (Jun & Jul) were relatively quiet. But the
market turned extremely volatile in August when the sub-prime mortgage
explosion rattled the whole market. As the credit market liquidity
disappeared, it has eventually triggered the stock market panic on 08/16.
August trading ended with an unprecedented loss of 35%.

Although the stock market zigzagged during the rest of the year, the
trading was relatively stable, largely due to very tight risk control. The
year of 2007 eventually ended with a profit.

Jan 2008 Positions

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

1.1%	1.3%	0.0%	5.2%	22.6%

Maintaining profit potential during low volatility is hard.

Keep a close eye on 99% VAR...

December 2007 Result

December 2007: 13.4%

12/03/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

7.4%	2.5%	0.3%	13.8%	53.3%

11/19/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

-0.1%	4.4%	7.1%	34.3%	81.0%

November 2007 Result

Nov 2007: 9.4%

10/22/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

0.8%	4.8%	7.0%	35.6%	82.8%

October 2007 Result

October 2007 Result: 1.8%

The last trading day's 40 pts drop has caused some loss. Nevertheless, the position
is not heavy, the risk is contained.

Big losses always come from panic. Just need to keep a close eye on the risks to
avoid panic.

10/4/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

1.1%	4.4%	0.8%	17.4%	83.5%

Keep close eye on 99%VAR risk

09/28/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.2%	2.1%	0.0%	8.6%	42.6%

October 2007 Positions

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

0.0%	2.8%	0.9%	10.5%	34.9%

September 2007 Result

September 2007 Return: 12.0%

This is not enough to get back the previous losses.
But it's good to make money...

08/27/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

6.9%	3.0%	1.9%	19.3%	56.2%

Keep close eye on the 99%VAR...

Lloyd's of London

http://en.wikipedia.org/wiki/Lloyd's_of_London

For most of Lloyd's history, rich individuals ("Names") backed policies written at Lloyd's with all of their personal wealth (unlimited liability). The losses in the early 1990s devastated the finances of many Names (upwards of 1,500 out of 34,000 Names were declared bankrupt) and scared away others.

======================

Names (rich individuals) of Lloyd's of London are not required to put down any money to underwrite the reinsurance policies. While their money earns great returns from stock market or real estates, Names get additional income (insurance premium) at the same time.

This strategy worked great until unexpected huge amount of insurance claims showed up. Those claims squeezed not only the insurance premiums, but also their own capital.

Isn't the index gambling strategy just like that employed by the Names of Lloyd's of London? Selling insurance policies for income can generates decent cash flow, but it is not without risk. The risk can potentially eat up all the working capital.

======================

08/26/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

6.8%	2.0%	1.6%	13.4%	38.2%

Reduced Risk (esp. 99%VAR) ...

Investment Landfill

Investment Landfill:
How professionals dump their toxic waste on you
http://goldnews.bullionvault.com/files/Investment_Landfill.pdf

==================
Excerpted from above:
==================
"You used to have to give me all your money to buy a boring old cash flow CDO, and then you were both lending your money and accepting the potential risk of the borrower defaulting. What I have for you today is the ability to accept only the better half of that deal.

"This new instrument means you can keep your money where it is, earning great returns in the stock market or wherever you're currently chasing performance, yet you will still receive income in return for underwriting the risk on a package of credit default swaps in the mortgage-backed security market.

"Look, I've got a great credit rating on this thing, and because we have eliminated the cash-borrowing aspect of the deal, I can sell you $1 million of synthetic CDO income for just $200,000.

"You get no extra risk above what you’d ordinarily accept, and a huge yield on your investment. You want in?"

August 2007 Result

August 2007 Return: -35.0%

A bloody month!

I need to re-think this strategy...

The loss is so deep that it is hard to write a reasonable review at this time. Reviews and thoughts will be posted at later time...

2007/08/08

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

4.2%	0.0%	26.4%	90.7%

2007/08/06

Reduce risk, cut loss...

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

9.3%	9.0%	46.4%	87.5%

2007/08/02

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

8.6%	3.5%	46.3%	108.5%

2007/07/30

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

8.9%	5.6%	47.0%	107.4%

2007/07/27

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

8.7%	8.4%	48.7%	104.0%

2007/07/26

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

8.1%	7.1%	45.2%	99.7%

2007/07/24

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

5.3%	1.8%	27.7%	73.1%

12 Months Review

It has been one year since posting of 'index gambling' blog. Here
is a summary:

Aug-06	4.1%
Sep-06	3.0%
Oct-06	6.0%
Nov-06	1.7%
Dec-06	2.1%
Jan-07	5.6%
Feb-07	2.4%
Mar-07	-15.0%
Apr-07	9.8%
May-07	5.7%
Jun-07	4.9%
Jul-07	10.0%

Average Monthly Return: 3.3%
Monthly Standard Deviation: 6.4%

One Year Return: 40.2%
Yearly STDEV: 22.1%


---------------

Augest 2007 Positions

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

4.1%	3.5%	25.4%	65.7%

July 2007 Review

July 2007 Return: 10.0%

This is a good month for index option sellers. There is decent implied volatility.
In addition, the market zig-zag-ed, it didn't go anywhere (not one way directional
up or down).

It good to make money.

:-D

2007/07/10

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.1%	0.0%	36.1%	117.0%

2007/07/05

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.9%	0.0%	19.8%	71.5%

Mid-July Review

I haven't changed any position since the beginning of this month (06/18).
We're half past July, there is still no change of position. Here is just what
it looks like today on 07/04.

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.0%	0.0%	15.1%	58.5%

Bill Gross: Subprime Loans

Bill Gross: Looking for Contagion in All the Wrong Places
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+July+2007.htm

2007/06/18

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

4.0%	0.2%	14.6%	44.3%

June 2007 Review

June 2007 Return: 4.9%

The market went down significantly in early June. Account positions
were shifted to protect from risks of further downfall. However, the market
stabilized after the initial downfall. Positions were then shifted back.

Such shift of positions costs ~2% of profit. Nevertheless, it reduced
risk exposure, which is also important.

2006/06/14

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

4.5%	0.9%	18.0%	49.2%

2007/06/12

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

5.6%	2.8%	22.1%	52.6%

2007/06/11

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.9%	1.9%	17.2%	44.0%

2007/06/08

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

5.0%	1.2%	28.7%	139.4%

2007/06/07

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

8.1%	0.0%	64.1%	183.6%

Prepare for downside risk

06/04/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.3%	0.0%	16.9%	126.3%

06/01/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

4.3%	0.0%	21.3%	111.1%

05/21/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.8%	0.1%	16.2%	52.3%

June 2007 Positions

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.5%	1.3%	18.5%	53.8%

May 2007 Review

05/2007 return: 5.7%

It took two months' gain (April and May) to make up one month's loss (March).

Nevertheless, it's good to be back.

:-D

05/18/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.3%	2.3%	18.7%	49.9%

05/14/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.7%	1.1%	12.6%	60.2%

05/09/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.3%	0.0%	28.1%	132.2%

05/07/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.6%	0.0%	17.5%	92.9%

05/02/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.6%	0.0%	20.1%	66.9%

04/23/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.9%	2.5%	22.6%	59.6%

May 2007 Positions

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.5%	0.0%	13.6%	41.5%

April Review

April return: 9.8%

This is a tough month. The market keeps moving up with no
meaningful pullback. In this market condition, keeping a delta
neutral position is hard.

Fortunately, up-market does not generate fear as down-market.
delta loss in up market is usually compensated by vega gains.
Although this month's gain is not enough to fully recover last
month's loss, the final result is definitely good, considering this
month's one-direction market.

Keep it up...

:-)

04/17/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.8%	1.4%	18.7%	51.0%

04/16/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.1%	0.4%	19.8%	49.0%

04/12/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.8%	0.0%	23.7%	157.6%

04/09/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

1.8%	0.0%	11.4%	93.0%

04/05/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.9%	0.0%	13.6%	74.0%

04/03/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.7%	0.0%	16.6%	74.1%

3/26/2007

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.4%	0.0%	14.8%	54.4%