- QE2 = Buy Risk Assets + Buy USTs.
- PBOC unexpected 25 bp rate hike yesterday = Sell Risk Assets. But Risk Off = Buy USTs still.
- So either way, buy USTs.
- Under QE2 risk classification, Core book VAR = 2.2x Hedge VAR.
- Now, switch to Risk Off mode, re-classify short US10YY and TY/Bunds spread to Risk Off. Risk On and Risk Off VARs almost matching.
- Acid test : Overall P&L was positive yesterday in the face of big sell off. Sign of well-structured book.
- Unlike stumbling onto QE2, this current VAR concentration on UST is deliberate design.
3 comments:
Great trading Tai Chi. Your position sizing worked at treat. I was long 2 x TYZ0, 3 x ESZ0 and 3 x EURUSD on the QE2/reflation trade. Got stopped on EURUSD leg y'day because too small on the TYZ0.
What VaR methodology are you using to size your positions? Is it based off EAR?
Lacking the heavy artillery of a bank, I simplify by equating VaR to IMR.
btw .. i am short eur/usd, not long
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