Trader Note

Expectations of market dropping on release of Non-Farms is a fatal trade.

2017-12-18 Week

Bitcoin Futures & Wale Exit. Exit Sugar Puts. See: EVENTS

This Week

RBA minutes might yield some breadcrumbs as to when and how quickly they will raise rates and tank the Aussie housing bubble.

BOJ rate decision might yield a quick trade, but will likely vary enough to drive markets long term.

    

Bitcoin Futures & Wale Exit

You should read this:

http://www.zerohedge.com/news/2017-12-08/bitcoin-has-whale-problem-1000-investors-control-nearly-half-market

Bitcoin Futures markets provide a unique opportunity for big holders of bitcoin to exit positions using legitimate avenues (major brokerages). Many of the wales in bitcoin are early adopters and miners that ended up with a massive holding of something they initially thought might be near worthless. As such, they are now looking to cash in on their holdings. Because they are not traders, but they are very smart, they also know that dumping a big supply into a limited market will collapse price. As early adopters, and firm believers, they do not want to destroy these markets but they do want to profit.

That is where the big trading houses enter. They are very good as selling into markets to either get the best price or manipulate price in their favor. These seasoned traders will be able to help these bitcoin wales exit these positions while maintaining relative price stability.

Futures contracts will help them to exit these markets. The futures contracts allow the wales to lock in a price they are happy to accept. As size builds, slowly, the general market will be unaware that a sizable trade is being place. Combined with put options and selling calls, such a short becomes very sizable. Once the bet is placed, the seller can then start to dump contracts into multiple markets with sufficient size to profit from both selling and sinking price. Algorithms can put many At-Limit orders into market that will suck up buying demand while not destabilizing price too much (ie. collapsing price with a big at-market sell order). As markets realize a seller is bricking price, they will slow their buying and may even start selling. This will push prices lower, putting the Bitcoin Futures short contracts into profit.

The seller exits their position on profit in the real market while also making profit on the futures market. The futures market profits are legitimized more so than the crypto market profits. This is especially true where crypto trading accounts were opened on markets before identity reporting requirements (there are still anonymous trading accounts on some of these markets).

So look to bitcoin seller volume in the futures market as an early indicator of big players looking for an exit. Expect that some major holders will be looking to cash out.

    

Exit Sugar Puts

If you took the sugar put trade, and rode the pain, you should be at break-even or better, including those too quick to get in (like me). This last week, sugar has seen a strong downward move, so it will be time to look for an exit.

 

SBH18_Barchart_Interactive_Chart_12_16_2017.png

 

Yes, that downward move took longer than expected. Yes, there is some loss on a put contract for time frame. However, any trade that makes a profit should be considered a good one.

The current down move does have some legs, but expect the selling to be short lived for the long term. There seems to be some demand from the long side as price dips which invariably will cause prices to reverse. This will happen as weak-handed longs puke out and shorts close position. So, take profits when they are offered and look for the next trade with good odds.

If you are planning to hold into next week, be aware that the USDA Sugar & Sweetener Outlook comes out late in the day on Monday, December 18. This may cause a direction change in trade (higher demand). It will also yield higher volumes, making for easier exits.

Have a look:

https://www.ers.usda.gov/publications/?page=1&topicId=0&authorId=0&seriesCode=SSSM&sort=CopyrightDate&sortDir=desc#

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