Friday, May 13, 2005

So I'm on the phone with Jarod the other day and not much is moving in the market. We have this game we play when there's no movements of interest in any of the stocks we follow. Its called "the dow jones minute bars game". We bring up the intra-day 1 minute bars on the dow, and based on where the dow is currently, we each take a guess at whether it will reach 10 points higher, or 10 points lower first. Often it is pretty tough to tell because when we start the game everything is dead in the water. Usually we're in agreement about where it will hit first, and this time we're both betting on the 10 points lower mark. It started to head a little higher at first, but clearly if you were already short (and you should have been) the best move is to sit short through the updraft. Before long the dow hit the 10 points lower mark, and just blasted waaay down through it, falling about 50 points in 2 or 3 minutes. So Jarod calls a switch to long at the bottom of the spike. At this point we know something is afoot because the volatility just went nuts. The dow bounced back up 40 points, and Jarod is taking profits along the way. The dow paused just a little too long, "SHORT!" He flipped back to short, and the dow tumbles another 30 points. "Long" and it coasts back up. "Flat, walk away." So I picked it up, "Long... sell half... sell another half... short... long... flat, done." We didn't find out until later that day that the volatility we were playing like a fiddle was caused by the off-course airplane and whitehouse evacuation.

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