It’s not all fun & games

As a follow up to the last post, I was afraid it may have come off too “optimistic”. Trading has been quite difficult for some time and though volatility trading is doing “OK”, there have been other dark spots in my book.
Lately the stat arb positions have been making life difficult. What I thought was a good entry turned into a fundamental disaster. The following is TSO/VLO spread with the log ratio plotted below:

Fundamental news in the space caused a massive widening of the spread. I was forced to stop out. Though I re-entered the trade with smaller size a day later. The refinery sector, and financials as well, have historically been a prime source of stat arb trade ideas. These things happen, stat arb distribution of returns are characterized by many smaller wins but exposed to large tail losses. It’s the landmines making this market environment a challenge for my strategies.

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~ by largecaptrader on August 28, 2012.

One Response to “It’s not all fun & games”

  1. […] stat arb spread between Tesoro & Valero unfortunately widened even further with news of  an acquisition of a refinery from British […]

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