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Macro Trading

Some of the most successful traders of all time including George Soros, Stanley Druckenmiller, Ray Dalio, and Jeffrey Gundlach are macro traders. Becoming a successful macro trader is difficult business. Mere mortals without their capital and the time to be proven right will struggle. I can’t afford to be macro-focused. I go where I find daily opportunity and it presents itself in underlyings with inflated volatility or in products that have been beaten down or have gone parabolic. Macro makes for interesting engagement and is useful for reference as I pin my beliefs and assumptions to it like on an adjustable frame. Although my macro perspectives do not drive my daily trades, I do want to trade on the right side of my macro beliefs. And sometimes macro and its complicated tangle of possible future outcomes lead to a high probability conclusion and that is when I will take on a core position. 

Trade wars, Brexit, possible impeachment and worldwide aggressions provide many reasons to be wary of the health of the world economy. It is difficult to remain constructive about the prospects for senior markets such as the S&P in particular. A temporarily inverted yield curve, repo market madness, and a very old bull market combine to fortify my resistance to being portfolio delta positive. These days my only long positions consist of deeply out of favor securities bouncing along their 52 week lows or ‘falling knives’ bought in anticipation of a short term bounce. I will utilize options whenever feasible to build positions in order to increase my probability of success. So I am much more likely to sell a put in a liquid, high volatility equity that is on its rear than I am selling a put in the /ES. However, I would consider selling an /ES put in the case of a particularly steep and quick drop in the S&P’s. Initial inflated volatility and time decay help the cause when waiting for a bounce.

I do have a core position now thanks to my macro beliefs. I am long precious metals. The reasons are many and well articulated by some of the traders referenced above. I am using /GC futures as this is the most capital efficient way that I know. There is a carrying cost, but it is worth it in my opinion. It is important to remember the leveraged nature of futures so keeping size in check is paramount in order to survive the zigs and zags. I will trade around my core position so I intend to sell and roll calls when there is a run up in the gold price and to cover those calls and sell and roll puts when there is a pullback. There are plenty of other ways to participate in precious metals such as buying bullion and ETF’s like GLD/GDX/GDXJ or by selling puts in those underlyings. The /GC world and many of its associated underlyings are great trading vehicles in that they are liquid and the options have a sizeable volatility component. The silver market is interesting as well, but definitely secondary in its importance.

Another way to play the possible future uptick in precious metals is through ownership of mining company stocks. That is an entirely different universe that will require its own space on this blog. Currently, I own a number of junior resource companies that should participate. I will delve more into this area in future posts as I open or add to my Speculations.

For anyone interested, one of my favorite macro writers is John Authers who authors a daily piece on Bloomberg. You can sign up for his free newsletter here.

 

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