in the light of the recent events and also out of preexisting interest i wanted to ask what the typical signs of crowded trades are and how those are observed ?
i only can guess and came up with those :
-marginal decreasing profits
(and therefore bigger risk taking to compensate e.g tight spreads , a lot of market makers and liquidity providers , looking at how many fixings there were, and looking at the prices and sales )
-unsustainable prices ( less greater fools around to sell to , taken usual valuation models and historical levels as reference )
- sideways markets/ tighter ranges, lesser volatility.(looking at iv )
- stagnating /decreasing acceleration , momentum combined with relative stagnating turnover and lightly declining prices (of course adjusted prices vwap, filtering noise etc)
-relying on central bank promises
2.
But how can one guess or approximate how leveraged certain participants are ?
what would be public accessible indicators or infos ?
more open interest with increasing/decreasing/stagnating prices during a certain time frame in futures and options markets ? with latest buyers/sellers the most sensible for shocks or violent moves ?
What goes up must go down the question is not if but when . And when can be quiet a long time , of course one can take several "indicators " and keep ones eyes and ears open , but when it happens ,it seems to happen fast . But during the mean time one can be whipped,burned ,crushed many times .
I read in Mister Sinclairs books several times the expression free lottery ticket , what did he mean with those ? waaay otm options ?
Mister Bairds "Options Market Making " described the wrangler as a strategy
as way to make "cheap" punts/bets , by selling atm , buying adjusted amount otm making it a credit spread , and looking for a underlying which has steep spikes in volatility .or which would be vulnerable to such for what reason ever (hot wars ,cold wars , shock in the supply side of commodities etc )
if nothing happens the bet pays for it self and costs very little so one can have a decent leverage and repeat it in a revolving way till something happens .
the better the idea / research the more likely a positive out come .
what are your honest ideas ,suggestions and criticisms ? always open for new insights and hints .
thx
sincerely yours
gustyshinobi
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