The Cheese Moves

Posted by DynamicHedge
on April 12th, 2011

One of my most reliable money making spreads “blew up” today. It’s a multi-way Closed-end Fund vs ETF arb that has moved in a predictable manner for many years. Unfortunately, an element of the relationship has changed and I will no longer be trading it in the near term. Luckily, I escaped relatively unscathed. There was some news in one of the components so I opted to stand aside for a few days.

I know this spread like the back of my hand. Every trading session over the last couple years, I’ve at least checked in on it. Some days I’d be glued to it for several hours at a time. The act of watching and anticipating the moves, adjusting the position size, taking off short positions and flipping them long in volatility, are all habits now ingrained into my trading brain. The spread is almost like an old friend — a very quiet boring old friend, maybe — but a friend nonetheless. It’s very tempting to try and fight for the survival of my old friend, but I know that if I push to trade it I will simply lose money.

The longer you trade, the more apparent it is that the only constant in this business is change. I’ve got a strategy that has been in development for about a year that I will be beta testing at the end of April. It is going to be EPIC. On to the next one.

Check out the carnage: