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Do you take chances?

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Do you take chances?

Sat Sep 08, 2012 9:43 pm

Let's say you find a rather mediocre arb but you believe there is a decent chance that the price on the sharp book will rise. The problem is that if you wait the soft price will most likely drop. So you bet the soft side now and wait for the sharp price to move hopefully towards the desired direction. You could turn a 0.5% arb to a 4%+ that way but there could also be a big jump in the opposite direction that could lead to big loss.

Have you tried anything similar?
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Re: Do you take chances?

Sun Sep 09, 2012 6:19 am

I have tried this before with about a 50% success rate. I don't any more because it can become a gamble and there is also the possibility you get busy and forget the other side of the arb.  ;)
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Re: Do you take chances?

Sun Sep 09, 2012 7:15 am

This is tricky.
The big question here is ''who is causing the move?'' If the move is genuine, then most likely you will get the trend and make some money.
But what if the move is caused by someone who bets high in Asians and pinnacle, then wait for trend followers (you in reality) and then covers everything from the other side? This guy will look for a 0.2-0.3% arb, and he will be happy with it, since he is playing with a lot of money. You on the other hand, you are looking for a nice trade/arb of 1-2-3%. This will never come, cause the other guy just looks for 0.2%.
An other big question is: ''Were you among the first to spot this move?'' If the answer is no, then again you have more chances to lose money, than earn.
I wouldn't trust my expectations to chances, because i prefer certainties.
On the contrary, your system will work much better in long term markets, where the greed from big wallets is limited.

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