Monday, August 24th brought you one of the weirdest trading day ever seen in the past several years.
So to sum up what happened today, here are a few charts, courtesy of Bloomberg, ZeroHedge and NANEX — time of the events may vary :
- It all started sometimes in China, when it’s business as usual these days :
- S&P Futures followed, kissing the dirt :
- Which then started a major liquidity squeeze on the US market, as seen on the following charts by NANEX :
- Causing buy-sell orders to never quiet match — courtesy of ZeroHedge :
- Shortly after the opening bell, something like this on the Dow Jones :
- And an impressive rise on the VIX :
- In the meantime, major (mini) crashes :
- To prevent further deterioration, just press the “HALT” button across major indices, including 3 consecutive press on the NASDAQ and 1’200 times during that day :
- Then the master of markets, Tim Cook, dropped an email to Jim Cramer stating the following :
I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks.
- Then, all of a sudden, while unrelated from the previous event — well, who knows :
- …While European markets will stay stucked for a little longer :
There’s more to it for sure, but here are some events, mostly correlated, to show the newcomer what’s up for today on the trading side.
Finally here’s a fun tweet from Josh Brown :
@ReformedBroker: Look, it doesn’t matter what you bought or what you sold. The important thing is that you panicked.
Like navigating busy Southern California freeways, volatility option trading is path dependent: Whether one makes or loses money depends on the path taken from point A to point B – as well as what happens en route. As with the freeways, bypassing traffic and finding an optimal route can make a big difference. As a real world example, driving to downtown Los Angeles from Newport Beach can take anywhere from 45 minutes to four hours depending on the route and road conditions (such as, perhaps, unexpected construction). It’s a dynamic process, as volatility – or “traffic” – can create more volatility.
Instead of trying to identify profitable trading algos on in-sample data that validate out-of-sample and remain profitable forward, one could instead try to identify unprofitable algos in some data sample that turn profitable in a forward sample. This often works because markets have become more mean-reverting in recent years.
→ Price Action Lab
The losses are a result of a serious error of judgment by an employee in our International Finance Unit acting beyond the limits of their authority and without following proper procedures. Greenpeace International entered into contracts to buy foreign currency at a fixed exchange rate while the euro was gaining in strength. This resulted in a loss of 3.8 million euros against a range of other currencies.
→ Greenpeace International
It’s a natural human tendency to seek out conforming opinions – people who agree with us. It makes us feel “right” and good about our decisions. In the investing world, however, this is dangerous. When I form an investment thesis, I’m always trying to figure out why it’s WRONG, not why it’s RIGHT. I want to know the thesis of the guy on the other side of the trade as me – and then I can evaluate whose thesis is stronger.
→ Kid Dynamite’s World