three dead simple edges in macro etfs
stuff you can trade drunk af and still make money
hi!
if you understand how edge is created in markets, you can do the simplest most neanderthal stuff and make money.
. . .
i’ll prove it to you.
i’m going to show you three dead simple edges that you can trade in spy and tlt.
these are so simple, so easy, that even i can’t mess them up.
and neither can you.
. . .
i’ve hinted about them for years on twitter.
today i’m going to show you explicitly what they are and how to trade them.
. . .
all of these trades basically look like this
...
imagine you are short $100k of some piece of trash.
the price doubles.
now you are short $200k of some piece of trash.
that’s twice as big and twice as risky as you wanted.
whether you want to or not, you’re going to need to cover some of that position.
or you’re running the risk of getting rekt.
. . .
this is an example of a forced flow.
you might not want to trade, you might not like the prices you’re going to get, but you have to trade, or you’re going to die.
forced flows like this can distort price temporarily. and you can trade them profitably if you can identify them.
buying liquidations in crypto is a good example of this.
. . .
a more mundane example is rebalancing flows.
consider you’re in a 60/40 stock/bond portfolio.
maybe you’re 60% in spy and 40% in tlt, for example.
when you put your positions on, your portfolio looks like this.
but then the market moves.
one of them is going to grow more than the other one.
let’s say it’s the stock position.
now your portfolio looks like this.
so what do you have to do?
well, you want to get back to the portfolio you wanted in the first place.
so you need to trade.
you need to sell down the spy position and add to the tlt position.
and so do a lot of other people.
a massive proportion of the wealth management industry is in this kind of portfolio.
and they’re all doing the same kind of rebalance trades in the same kind of way, at the same kind of time.
. . .
might this create tradeable dislocations?
yeah. it absolutely does.
most rebalancing happens around month end.
so here’s a real simple way to take advantage of this.
. . .
strategy 1 - end of month spy / tlt rebalance flows
on the trading day 15 of each month, calculate month-to-date returns for SPY and TLT
if SPY MTD > TLT MTD, go long TLT the next trading day
if TLT MTD > SPY MTD, go long SPY the next trading day
hold until the end of the month
none of this is brain surgery.
trading day 15 ain’t special.
i just picked that cos i had to pick a number for you.
it’s a simple blunt trade. there’s no precision here.
you just wanna be long the shit that people are probably rebalancing into towards the end of the month.
. . .
now i’m going to show you two more similar ideas. you can trade all of these by hand easily using websites like tradingview.
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