Recently a fraudulent case happened in China and it triggered much anger throughout the nation. Well actually fraudulence happened in this country everyday and everywhere so it should be no new thing at all. In fact if there is no fraudulence in a particular day in anywhere of the country then it is really a big news. This fraudulent case did arouse the concern of the whole nation though because it affected 210 thousands families altogether and the victims are children. It's sad to hear children again became victims.
The case is about a pharmaceutical company which produced vaccine which does not meet the standard. It also fabricated the GMP production record to forge a compliance. So apparently this is an organized crime throughout the whole organization from top management to floor workers. It is really as what the ex national president Jiang put it "too simple and sometimes naive" if one believes this is an isolated case in China's pharmaceutical industry. Or even the whole country?
There are many big problems in China now like corruption, suppressed human rights, pollution, huge gap between the riches and the poors but among them a common problem interwoven with all these problems, ie., lack of integrity in the society as a whole.
Ironically there was an ancient Chinese saying that a man without integrity is no difference from a cart with no wheels. In fact the Chinese business communities in the old times saw integrity and creditability were more important than their lives. Many big deals were conducted just based on trust. This was one of the great Chinese traditions carried down generation to generation since thousands of years. However, gone were the days when the nation was traumatized by the so called Cultural Revolution which lasted for 10 years in the 1960s'.
During that ten awful years there was literally no law and order. Gangs fighting overrode rules. What's more, traditions were criticized as bad things that must be removed. Formal eduction was halt because authorities were challenged. This affected the then young generations whom not only received no eduction but also were influenced by propaganda that outlawry was just revolutionary. Over the years these generations became parents and grandparents and they passed down this new tradition to their offspring. Now those then young generations or their children became the masterminds of businesses and those outlawry practices were deeply rooted in their minds.
Then later in 1980s' the theory of "be it white or black, it is a good cat as long as it catches rats" by the then national chief, Deng, promoted a rush on the nation-wide money making. The original meaning of this theory was meant to end the debate on the superiority between communism and capitalism but to focus on the productivity. However, with the lack of the ethical guidance throughout the nation this theory quickly translated into the version of "who cares as long as I made money? " and spurred a round of money-making storm without integrity since then. Compounded with the monopolized party ruling that prone to breed corruption, nowadays shameless became the norm in the whole country disregard whichever areas or sectors are.
When trust in a country became a luxury then it could lead to an even more serious issue, ie., how long the regime can last? Nowadays fraudulence in China is not limited in private sector or businesses only but throughout the government as well. However, China is so big and the economy scale is also huge so reliable information is crucial on the monitoring of the development on various activities followed by suitable and timely adjustment on the related policies to address the issues. The point is that accuracy of these information is not guaranteed as fraudulence became a norm and practice no matter in the public or private sector. Statistic could be just fabricated figures failing to tell the truth then how the central government can really see the problems and where they lie? Let alone the needed follow-up actions. This undermines the governance and puts the ruling in danger.
As China's economic strength is on the rise, it demands more say on the global affairs. To back this change on status quo China is flexing its muscle in high profile in this decade. Its huge market potential attracts many businesses around the world. People see a powerful and opportunities rich country is uprising. Or is it?
The North Sea Fleet in the Qing Dynasty was also seen as an invincible fleet that the dynasty was very proud of because all the warships were so powerful and were supposed to be best equipped with state of art technologies. However the fact was that because of corruption and fraudulence the fleet was only a shit. Many ships of the fleet were destroyed and some were captured when it broke into combat with the Japanese fleet in 1894-95. The whole world then finally realized that the once giant was nothing but actually an empty shell only. The fall of Qing Dynasty was attributed by many factors but corruption and fraudulence were no doubt among the key ones.
Now China displayed its military muscle to claim how powerful their army is. Could it be the modern version of the North Sea Fleet? The hardware of an army is no doubt important but what if the core is rotten with corruption and fraudulence which is already a known secret?( Thus Xi could capitalize this phenominon to remove Jiang's allies from the army). How much fighting spirit does it has when morale has gone? Let alone the army has never engaged in large scale real life combat for 40 years since the war with Vietnam in 1979. On the other hand its most probable rival, the U.S. army are involved in different battles openly or secretly from time to time to drill their tactics and competency.
Vaccine is only a tip, where does the iceburg lie?
2018年7月24日 星期二
2018年7月12日 星期四
Trade war
No doubt trade war has become the talk of town recently. Well, perhaps I am a bit exaggerated but certainly it is the most concerned topic among the economic animals now.
Not surprisingly most, if not all, local commentators hold the same view that the U.S. initiated this dispute and it is bullying China. It is easy to understand the reason why because people here in Hong Kong has relationship with China in one way or another and this connection brews the sentiment of sharing the same boat. When all people speak in a same tone then perhaps it is time to think out of the box so why not put self in a neutral stance to look at this issue?
It is true that the dispute was provoked by the U.S. and most people knows that trade deficit is not the central piece but just an excuse and it is a means rather than the end. It is just all about the challenge that China is imposing on the U.S. that upsets it because China has been flexing its muscle in high profile more than ever. However, on one hand trade deficit does exist indeed. Perhaps before the escalation of the tariff punishment not many people realized that China is exporting almost US$500 billion to the U.S. annually while the latter just exports US$130 billion to the former. China does nearly 4 times more than does the U.S. yet all commentators or all the Chinese officials just ignored this fact of imbalance.
I think this is what Trump said unfair. Some may say it is because the Americans are shopaholic so they imported 4 times more than their export. It may be true but there is a term "price elasticity" in the fundamental economics meaning the demand drops when the price rises for the non necessities. Why Americans buy so many Chinese products it is because China sold them cheap. China just exploits the U.S. market by capitalizing its oversupply production capacity resulting in low costing. Many of us who has ever been in a department stores hosting a true crazy sale know when things are so cheap then we just can't help but just shop even without thinking whether at all the stuff is necessary. The Americans are in an all year round sale "unfortunately".
The other unfair practice that Trump mentioned is that there is literally no barrier for China capitals to do business in the U.S. but foreign capitals face much difficulties when they do the same in China. The requirement of joint venture is almost a must for any sizable investment. Let alone many other permits and approvals.
Back to the trade imbalance, China literally can export most of its products to the U.S. market but she imposed import barrier to quite a number of U.S. products or produces. China just wants to enjoy the goodies from the free trade but left all those unwanted on the table. China really has to integrate into the system and learn what free trade is really about in order to earn the respect from the other nations.
Despite Trump's ultimate target is not to rectify the trade imbalance but it is really one of the issue that appears apparently unfair to the U.S. and he just capitalizes so well on this excuse to launch the deterrent of the uprising China challenge. People say Trump practices unilateral policy on global affairs but one must understand that Trump does not has noble upbringing background nor is he an elite graduate of Ivy league. He just made some money to become rich but deep inside he is a street boy whom does not bother boxing that bounded by rules but street fighting. As a line in the film Yip Mon puts it, Kungfu just ends up into two states, the winner stands while the loser lies down.
Not surprisingly most, if not all, local commentators hold the same view that the U.S. initiated this dispute and it is bullying China. It is easy to understand the reason why because people here in Hong Kong has relationship with China in one way or another and this connection brews the sentiment of sharing the same boat. When all people speak in a same tone then perhaps it is time to think out of the box so why not put self in a neutral stance to look at this issue?
It is true that the dispute was provoked by the U.S. and most people knows that trade deficit is not the central piece but just an excuse and it is a means rather than the end. It is just all about the challenge that China is imposing on the U.S. that upsets it because China has been flexing its muscle in high profile more than ever. However, on one hand trade deficit does exist indeed. Perhaps before the escalation of the tariff punishment not many people realized that China is exporting almost US$500 billion to the U.S. annually while the latter just exports US$130 billion to the former. China does nearly 4 times more than does the U.S. yet all commentators or all the Chinese officials just ignored this fact of imbalance.
I think this is what Trump said unfair. Some may say it is because the Americans are shopaholic so they imported 4 times more than their export. It may be true but there is a term "price elasticity" in the fundamental economics meaning the demand drops when the price rises for the non necessities. Why Americans buy so many Chinese products it is because China sold them cheap. China just exploits the U.S. market by capitalizing its oversupply production capacity resulting in low costing. Many of us who has ever been in a department stores hosting a true crazy sale know when things are so cheap then we just can't help but just shop even without thinking whether at all the stuff is necessary. The Americans are in an all year round sale "unfortunately".
The other unfair practice that Trump mentioned is that there is literally no barrier for China capitals to do business in the U.S. but foreign capitals face much difficulties when they do the same in China. The requirement of joint venture is almost a must for any sizable investment. Let alone many other permits and approvals.
Back to the trade imbalance, China literally can export most of its products to the U.S. market but she imposed import barrier to quite a number of U.S. products or produces. China just wants to enjoy the goodies from the free trade but left all those unwanted on the table. China really has to integrate into the system and learn what free trade is really about in order to earn the respect from the other nations.
Despite Trump's ultimate target is not to rectify the trade imbalance but it is really one of the issue that appears apparently unfair to the U.S. and he just capitalizes so well on this excuse to launch the deterrent of the uprising China challenge. People say Trump practices unilateral policy on global affairs but one must understand that Trump does not has noble upbringing background nor is he an elite graduate of Ivy league. He just made some money to become rich but deep inside he is a street boy whom does not bother boxing that bounded by rules but street fighting. As a line in the film Yip Mon puts it, Kungfu just ends up into two states, the winner stands while the loser lies down.
2018年7月10日 星期二
Index option trading with statistic (2)
In my earlier post I mentioned an idea of index option trading with a database which provides statistical information for trading decision. Naturally there are many analysis one has to make in option trading in order to be profitable, or at least, to stay safe because option trading involves leverage. It could be catastrophic if the market goes against one's position.
When narrowing down all the decisions, it indeed just comes down to two key ones, ie., the strike picking and the timing for opening a position. This is when a database of the past trading statistical info could be helpful.
The rationale of the application of database in index option trading rests on two assumptions, ie., 1) the index intra month fluctuation and particularly the monthly settlement point are the outcome of the combat between the big bullish players and the bearish counterparts and 2) the past scenarios, in a certain extent, will repeat in the future. If we believe these two points hold true then we can refer to the database of past record for some inference on the two key decisions, ie., strike picking and timing.
For the short side traders, a safe strike is at OTM level when opening a position and this strike will still stay below the settlement point in case of short put (will stay above the settlement point in case of short call). Ideally when opening a position the more OTM away from the prevailing index point the safer. However, the drawback of a too OTM strike is that the premium received is too little which might not be justified the potential risk in a volatile market situation. So in my previous post I raised an example of a strike which has a only 0.10 probability that settlement point might go beyond it. In other words, it means 90% of chance the positions are safe at the settlement day despite the index could run beyond the position strike in case it approaches to the month's peak (in case of short call) or the month's low (in case of short put) but the settlement will eventually be below(above) the strike of the short call(short put) position. 10% probability is only an example so one can choose his risk exposure by adjusting the percentage of probability to suit his risk appertize.
A strike with only 10% of chance being struck through is only a conception however one has to work out at what exact strike in the trading execution in each month. In such case we need a database of trading records in the past months, the more the better. Unfortunately there seems no such database readily available in the market so one must build it by his own. I started building my own database a few years back and have been refining it over the years since then. It covers the past trading data since 2000 September. This is the oldest month which I can get the trading data so far. In the database and among all data, the most important trading data are the rollover point and the settlement point for each month. I need these two figures to work out how far the settlement point is away from the rollover point in each month so that I can get the monthly deviation. These monthly deviations play an important part in the safe strike picking.
According to my database, among the past 18 years, the biggest deviation in HSI on the upside is +5138 point in 2007 October and the downside is -4832 point in 2008 October. However 90% of chance the deviation lies between +1784 points for the upside and -2233 points for the downside comparing to the rollover point. For example the HSI index rollover point from last June to this July is 28601 so one can reasonably expect a 90% safe strike at 304 for short call and 264 for short put provided there will be no black swan events within this month.
When a database is built then working out the 0.10 failure probability strike is relatively easy. The Percentile function in Excel can easily give you what the relevant strikes corresponding to different given probability are like based on the deviation info in the past months record from the database.
Despite my database just includes nearly 18 years record yet luckily it covers three waves of market up trends and two waves of downtrends respectively so it should be representative enough for both uptrend and downtrend market inference.
Having mentioned many times of strike with 0.10 failure probability but one must bear in mind such failure probability means in average over the long run one failure out of ten trades so one must decide whether 90% chance safe is good enough for self. On the other hand despite 90% of trades will see the settlement point be well contained within the strike but the index could likely go beyond the strike prior to the settlement day so heavy margin liquidity could be required during this period prior to the settlement day. Naked short position will see heavy pressure on the margin requirement to keep the position alive and it could be extremely painful. Therefore protective long or certain types of hedging is highly recommended for sleeping well at nights.
This is a rather long post so I am going to talk about the timing for position opening with database in next post. Tentatively I called this index option trading with database statistical record as Probability Trading because decisions rest mainly on the probability of how likely an event will or will not occur.
When narrowing down all the decisions, it indeed just comes down to two key ones, ie., the strike picking and the timing for opening a position. This is when a database of the past trading statistical info could be helpful.
The rationale of the application of database in index option trading rests on two assumptions, ie., 1) the index intra month fluctuation and particularly the monthly settlement point are the outcome of the combat between the big bullish players and the bearish counterparts and 2) the past scenarios, in a certain extent, will repeat in the future. If we believe these two points hold true then we can refer to the database of past record for some inference on the two key decisions, ie., strike picking and timing.
For the short side traders, a safe strike is at OTM level when opening a position and this strike will still stay below the settlement point in case of short put (will stay above the settlement point in case of short call). Ideally when opening a position the more OTM away from the prevailing index point the safer. However, the drawback of a too OTM strike is that the premium received is too little which might not be justified the potential risk in a volatile market situation. So in my previous post I raised an example of a strike which has a only 0.10 probability that settlement point might go beyond it. In other words, it means 90% of chance the positions are safe at the settlement day despite the index could run beyond the position strike in case it approaches to the month's peak (in case of short call) or the month's low (in case of short put) but the settlement will eventually be below(above) the strike of the short call(short put) position. 10% probability is only an example so one can choose his risk exposure by adjusting the percentage of probability to suit his risk appertize.
A strike with only 10% of chance being struck through is only a conception however one has to work out at what exact strike in the trading execution in each month. In such case we need a database of trading records in the past months, the more the better. Unfortunately there seems no such database readily available in the market so one must build it by his own. I started building my own database a few years back and have been refining it over the years since then. It covers the past trading data since 2000 September. This is the oldest month which I can get the trading data so far. In the database and among all data, the most important trading data are the rollover point and the settlement point for each month. I need these two figures to work out how far the settlement point is away from the rollover point in each month so that I can get the monthly deviation. These monthly deviations play an important part in the safe strike picking.
According to my database, among the past 18 years, the biggest deviation in HSI on the upside is +5138 point in 2007 October and the downside is -4832 point in 2008 October. However 90% of chance the deviation lies between +1784 points for the upside and -2233 points for the downside comparing to the rollover point. For example the HSI index rollover point from last June to this July is 28601 so one can reasonably expect a 90% safe strike at 304 for short call and 264 for short put provided there will be no black swan events within this month.
When a database is built then working out the 0.10 failure probability strike is relatively easy. The Percentile function in Excel can easily give you what the relevant strikes corresponding to different given probability are like based on the deviation info in the past months record from the database.
Despite my database just includes nearly 18 years record yet luckily it covers three waves of market up trends and two waves of downtrends respectively so it should be representative enough for both uptrend and downtrend market inference.
Having mentioned many times of strike with 0.10 failure probability but one must bear in mind such failure probability means in average over the long run one failure out of ten trades so one must decide whether 90% chance safe is good enough for self. On the other hand despite 90% of trades will see the settlement point be well contained within the strike but the index could likely go beyond the strike prior to the settlement day so heavy margin liquidity could be required during this period prior to the settlement day. Naked short position will see heavy pressure on the margin requirement to keep the position alive and it could be extremely painful. Therefore protective long or certain types of hedging is highly recommended for sleeping well at nights.
This is a rather long post so I am going to talk about the timing for position opening with database in next post. Tentatively I called this index option trading with database statistical record as Probability Trading because decisions rest mainly on the probability of how likely an event will or will not occur.
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