Pascal
12-11-2012, 02:57 AM
I Received the following question, which us general enough for me to post both the question and the answer:
Hi Pascal;
If you have time I would really appreciate your thoughts about the divergence I am seeing in EEV price and huge accumulation by the smart money. I am trying to figure out how it fits with anything and not having any real ideas. Why would smart money be interested in shorting emerging markets but not China? Makes no sense to me; any thoughts would be most appreciated.
EEV is a leveraged short. The corresponding non leveraged long is EEM.
I copy below the EV pattern for both. We can see that both have an up-trending EV pattern.
There are two major differences: the leverage used and the "popularity" of each instrument.
A leverages short instrument is often used as a hedging tool against an existing long position.
These instruments allow to put less money on the table to partially protect a long position that you do not want to or cannot sell.
We also see below that the volume size for EEV is in the two digits (30 * thousand,) while the EEM volume size is in the five digits (10,000 * thousand.) This means that anyone who wants to buy 10,000 shares of EEV will have an impact on the EV pattern, while the same amount of buying on EEM would even probably not appear on the EV pattern.
In other words, because of the sheer volume difference, the pattern of EEM is probably closer to the truth than the EEV pattern, which might have been the consequence of one fund entering an hedge on November 29.
Pascal
16609
16610
Hi Pascal;
If you have time I would really appreciate your thoughts about the divergence I am seeing in EEV price and huge accumulation by the smart money. I am trying to figure out how it fits with anything and not having any real ideas. Why would smart money be interested in shorting emerging markets but not China? Makes no sense to me; any thoughts would be most appreciated.
EEV is a leveraged short. The corresponding non leveraged long is EEM.
I copy below the EV pattern for both. We can see that both have an up-trending EV pattern.
There are two major differences: the leverage used and the "popularity" of each instrument.
A leverages short instrument is often used as a hedging tool against an existing long position.
These instruments allow to put less money on the table to partially protect a long position that you do not want to or cannot sell.
We also see below that the volume size for EEV is in the two digits (30 * thousand,) while the EEM volume size is in the five digits (10,000 * thousand.) This means that anyone who wants to buy 10,000 shares of EEV will have an impact on the EV pattern, while the same amount of buying on EEM would even probably not appear on the EV pattern.
In other words, because of the sheer volume difference, the pattern of EEM is probably closer to the truth than the EEV pattern, which might have been the consequence of one fund entering an hedge on November 29.
Pascal
16609
16610