Cattle, Apples, and Blackberries

Slightly belated, but a snapshot of several recent (pretend) portfolio trades:

Long on Live Cattle: Let's be honest, this one was a total gamble.  Of all the futures, agriculture is arguably the riskiest category. Areas like currency exchange rates, interest rates, and metals (gold, silver, etc.) at least arguably follow macro economic trends. Agriculture? Often comes down to the weather - good luck betting on that. But whatever, we needed a macro trade, I realized that CME sadly no longer sells pork belly futures, so I picked long cattle.

(Speaking a couple weeks later, this ironically turned out to be our best pick so far in the portfolio - apparently drought/other weather issues has driven up the price of cattle! Score - though the satisfaction is slightly diminished knowing it was pure luck :o) ).

Long on Apple, Short on RIM: A year ago, I tried to talk a work colleague out of buying apple when it was around $700. It just seemed like their idea pipeline was running a bit dry (never a good sign that a company prefers to sit on more money than the US Government rather than put it to work on good ideas), and that love for the brand had been a big driver in the shoot-up in stock price.  As of a couple weeks ago though, Apple had taken a beating and settled around $460. At the same time, RIM, the long-beleaguered Blackberry maker, had come out with a new model, and the stock price had shot up.  We thought Apple had room to grow, but that RIM perhaps had been over-boosted, so we settled on bit of a technology hedge and went long Apple, short RIM.  Not much price movement yet, so profitability is still TBD. (Though RIM did fall from $16.96 to $14.63 since we bought, so headed in the right direction, anyway).

Long on Samsung, Short on KRW (South Korean Won):  Going long on Apple and long on Samsung in the same week is a Texas Hedge*, but we offset at least the exchange rate riskiness of buying Samsung (which is traded on the Seoul, London, and Luxembourg exchanges) by going short the South Korean Won (KRW).  This way if the KRW drops, hurting the exchange rate at which we buy/sell stock, we will have lost money on the Samsung stock, but made money on the KRW future.

Short on 2-Yr Treasury Futures: It's no secret that we are over-due for some serious inflation given the amount of money that the Fed has been pumping into the economy.  Because it's not a secret, it's also hard to make money on the concept ... a trade then becomes all about the timing. That said, we decided to try going short on 2-year treasuries. As inflation kicks in, interest rates will rise. Because a treasury is a bond instrument, when interest rates rise, price falls, and we make money (theoretically). For more info on inflation and the Fed, see my post on the Taylor Rule.

*Terms:
Texas Hedge: The opposite of a normal hedge (where you reduce risk by buying different types of securities, or going long and short on a single type of security), the Texas Hedge actually increases your risk by going long on 2 similar items. The origin of the term is unclear, though some think it began with Texas cattle farmers who "doubled down" on their risk by also buying cattle futures.