Trading Law Suit Decisions

[tjlocke99 18]

Hey SO community!

 

I was wondering if anyone knows of a site that lists pending law suit decisions or upcoming settlements?   Also has anyone tried trading this strategy?

 

Here is a good example:

 

http://www.usatoday.com/story/money/business/2013/11/12/starbucks-kraft-foods-bagged-coffee-lawsuit/3510215/

 

The parent company MDLZ was up approx 2.7 and 2.55% the next days, 11/13 and 11/14.  A straddle would have done phenomenal (over 30% return each day).  This is a low vol company, so these moves are huge.  I looked at the Oct IV and the Nov straddle wasn't priced much higher, indicating there wasn't any vol increase leading to the decision.

 

Perhaps news that a decision will be made on a certain date is not known in advance?

 

Again are there any sites that list upcoming business law suits?

 

Thanks again!

[tjlocke99 18]

Any takers on this topic   Just wanted to see in case anyone forgot about it

 

Thanks.

[Marco 221]

- more uncertainties about timing (court may postpone ruling as lawyer find new evidence or whatever)

- and a lot less trading opportunities (compared to 4 quarters of earnings for plenty of liquid shares)

- and mostly you have no comparison. You can argue that earnings reports for a company are comparable and therefore you can look back what implied move, hist. move etc. was for how ever many quarters you think are relevant. But what is the fair implied move for a Law suit outcome? You need to do a lot of research to answer that question and it will be hard to find comparables ....

 

so not a fan of the idea ....

[tjlocke99 18]

thanks for replying marco!

 

but i can't even find a site with any of the information to try and test the idea.  that is why i was hoping someone could recommend a site.

 

i'm also not talking about a gamma or vega play like the pre-earnings trades here (those don't work for me because i have a full time job and can't monitor the site or fills enough).

 

i'm talking about doing this for a straddle gamma type play.

 

personally, for a part timer, i haven't found an option trade other than the occasional calendar that works for me, but i'm still hunting

 

thanks again.

[Marco 221]

 

> i'm talking about doing this for a straddle gamma type play.

 

same problem here, how do you know what a 'fair' or cheap or expensive implied move is? Without any info its just like putting money on red or black.

 

> personally, for a part timer, i haven't found an option trade other than the occasional calendar that works for me, but i'm still hunting 

 

not an option trade but what I like as long term, low maintainace trade is to be long ZIV (or XIV for much better reward but also more risk) if the 10d SMA of VIX/VXV is below 1and flat (or long VXX for the few times where the market properly tanks) above 1. 

[tjlocke99 18]

are you saying the ratio of the VIX 10d SMA vs the VXV 10d SMA?  do you have an easy way to alert you when this occurs?

 

also what is your exit point?

 

thanks!

[Marco 221]

are you saying the ratio of the VIX 10d SMA vs the VXV 10d SMA?  do you have an easy way to alert you when this occurs?

 

also what is your exit point?

 

thanks!

no, VIX/VXV ratio calculated on a daily basis and take the 10d Simple moving average (SMA) of that ratio.

Go long XIV (ZIV) when 10 SMA is below 1 and sell your long position if it goes above 1. You can play the crash as well if you buy VXX the same time when you sell your long XIV/VXX position. Long VXX above 1 doesn't work most of the time but every 4 years or so you double or tripple your money in a couple of month (aka a crash) so that can boost the strategy return quite a bit when there is a crash but most of the time you are gonna be long XIV/ZIV anyway so thats just an extra that you can skip.

 

If you are looking for an entry point to start you can either just enter now (as 10 SMA of ratio is below 1) or maybe average in, or bit more conservatively you would wait for it to go above 1 and then drop below 1 again - but last time the 10d SMA was above 1 was Oct11 so that might take a while ... it should be enough if the unaveraged ratio goes to like 0.96/0.97 or the 10d SMA goes to like 0.95 and drops from there.

 

Backtested to Mar'04 (using VIX futures data to estimate XIV values) this produces spectacular results (100$ turned into 17,800$ with only 29 trades!! - hows that for low maintenance) however with horrible draw downs of up to 73% (i.e. in the worst period of this strategy you lost 73% from the high water mark) The bad draw down was in '07 (dwarfed in the graph below by the subsequent massive returns) interestingly when VIX was swinging around between 15 and 25. In 2008 when VIX exploded the strategy got you out of XIV (and into VXX if you play it from that side as well)

So this is a high risk strategy but with very high returns as well if the VIX futures are in consistent contango like over the past years. But certainly not to use for a large chunk of your portfolio 

 

red is XIV buy (Mar'04) and hold,  green is strategy described with XIV long only, and the last is SPY (on the right hand scale)

Edited January 10, 2014 by Marco

[tjlocke99 18]

Marco,

 

Thanks.  Do you have any other strategies like this?  Do you buy into the "trend trading" at all - not day trading trends but more more positions that would be held at least a day?

 

I now think I understand the strategy you laid out except for a few questions:

1.  Is the ratio calculated based on end of day prices?  Related to that question, when are the trades made, intraday when the ratio goes above/below 1 or at the following open?

2.  How do you calculate these ratios and put that graph together?  Did you pull EOD prices on VIX and VXX from Yahoo from the last 10 days and then divide them out and then take the 10 day SMA of that ratio?

3.  Is the return in green inclusive of going long VXX when the ratio is above 1?

 

Thanks!

[Marco 221]

Marco,

Thanks. Do you have any other strategies like this? Do you buy into the "trend trading" at all - not day trading trends but more more positions that would be held at least a day?

>I now think I understand the strategy you laid out except for a few questions:

1. Is the ratio calculated based on end of day prices? Related to that question, when are the trades made, intraday when the ratio goes above/below 1 or at the following open?

The ratio only produced 29 trades over the last 10 years. The backtesting above trades on the close of the day the 10d SMA of the ratio goes above or below 1. A couple of times in years like 2008 that saved you quite a bit as things got ugly the next day but in the long run trading on the next day should be fine too.

>2. How do you calculate these ratios and put that graph together? Did you pull EOD prices on VIX and VXX from Yahoo from the last 10 days and then divide them out and then take the 10 day SMA of that ratio?

Basically yes it's VIX/VXV (not VXX) though. And for the purpose of back testing some VXV and XIV data is calculated from historic SPX option and VIX futures data as neither the index not the ETN existed back in 2004. (I bought that data)

>3. Is the return in green inclusive of going long VXX when the ratio is above 1?

No that's just long XIV with the 10d SMA below 1 and flat (cash) if it goes above. With long VXX above 1 returns go up about 5 fold so 100$ in 2004 turned into over 100,000$ today

Long VXX above 1 doesn't work really well most of the time - it worked properly only 2-3 times in that 10 years but then it doubled or tripled your money in a few months (like in the crash of 2008). So if you play that side you are likely to suck up a number of losses hoping that eventually you catch another crash.

Thanks!

Edited January 12, 2014 by Marco