Biotech Short Nets 8.2% Gain

At this juncture in the market, trades are only to the short side.

The one exception is the bond market.

With everything stretched to never-seen-before extremes and ready to break at any time, bonds are in position to rally.

This short-story of the biotech short actually begins with a bond loss.

Going back in time a bit; on Friday the 12th, a long position was opened in bonds via TMF. That action was documented in this post.

Then, we had the holiday weekend and the Texas freeze.

These posts are originating from a location near Ft. Worth Texas, where temperatures reached a low of -3 F.

At the office, we have backup power and physical (hard-wire) connection for internet. Both systems operated well as main power was cut repeatedly over a three-day period.

Those conditions are mentioned because at the open on Tuesday the 16th, transmission, execution and update times on trades were affected.

A potential harbinger of things to come.

Imagine a nation-wide outage where the market’s down 15-20% and still collapsing. All the while, trade platforms are locked-up with brokers inundated.

During that open on Tuesday, bonds (TLT) gapped-down which was unexpected. Inverse fund TMF was immediately down about -4.5%.

Overall, the bond market is still in position to rally. However, the open on Tuesday said ‘not yet’ and we’re not going to change the trading strategy to one of ‘hope’.

With trade execution times slow (minutes, not seconds), by the time a confirmation came in from the broker, exit on the position posted a -5.2% loss: A dent in the account for sure.

At the same time, we’re monitoring a large set of equities and markets.

So, the immediate task at hand was could that hit be mitigated quickly. Was there an opportunity in another market for gain?

The short answer was yes. It was in biotech to the downside.

Price action on the platform was slow to update. However, it was clear from what was available, shorting biotech via LABD was high probability.

That’s what happened. Entry was at LABD 14.73, about ten-minutes into the session.

Obviously, under the conditions, stress level during re-positioning was high. Temperatures in the trading office were about twenty-degrees below normal.

It’s hard to say exactly, but sometime as the last trade was being entered or confirmed, main power was cut again.

Subsequent price action on LABD was fast.

By the time we’re halfway into the session, not only has the loss been mitigated but the account is showing green. Good stuff.

The position and the account finished the trade in the green and the rest is history. Entry and exit are shown on the 15-minute chart below.

On the exit and in retrospect, the trade was held for a bit longer than it should have been as there was potential for additional upside.

When it became clear it was not to be, LABD was exited with an 8.21%, gain as noted:

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

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