The DAXSPX pair trading strategy @The Eye of Sauros

I've lately had a tendency when entering a stock index position to trade
indifferently (almost) any stock index: Dow, S&P 500, Eurostoxx 50,
DAX, CAC40, FTSE, Nikkei,... depending on the value of the index which
defines the size of the position and the leverage, on my mood and mainly
on the colour of my underwear at the moment of the trade. The reason
for this is that after the systemic shock provoked by Lehman's collapse
and during a major part of last year, most of the Capital Markets, Fixed
Income and Equity, were highly correlated. The 30 of the Dow then
seemed to reign on the whole world in a sense that following the action
on the American index was generally enough to have a precise idea of the
behaviour of any other market: EURUSD, USDJPY, Oil or gold for instance
and obviously of any other major stock index. To cut a long story
short: after Lehman, everything went down and from March 09 onwards
everything went up.

Read the Full Post

Sauros wrote:

I've lately had a tendency when entering a stock index position to trade
indifferently (almost) any stock index: Dow, S&P 500, Eurostoxx 50,
DAX, CAC40, FTSE, Nikkei,... depending on the value of the index which
defines the size of the position and the leverage, on my mood and mainly
on the colour of my underwear at the moment of the trade. The reason
for this is that after the systemic shock provoked by Lehman's collapse
and during a major part of last year, most of the Capital Markets, Fixed
Income and Equity, were highly correlated. The 30 of the Dow then
seemed to reign on the whole world in a sense that following the action
on the American index was generally enough to have a precise idea of the
behaviour of any other market: EURUSD, USDJPY, Oil or gold for instance
and obviously of any other major stock index. To cut a long story
short: after Lehman, everything went down and from March 09 onwards
everything went up.

Read the Full Post

Very interesting strategy, at least for me, I would think this is quite unique. Interesting how the DAX is 160 points higher than the SPX. It seems the greek situation will have an interesting effect on this trade.

Will the bailout hurt the short term outlook on this trade? as in will the cost in the short run hurt the EUROZONE economy, and longer out be beneficial. (long spx short run/short dax to long run short spx/long dax when things get better)

With if the EUR is still in a down trend vs the dollar, i would think the above scenario quite possible. Though, if dollar weakness comes rear its ugly head, this maybe a significant risk for your trade.

any ideas on a hedge?