Shorts, warrants and something in between

Do you ever get the sense that you're at the end of a grand ponzi scheme and suddenly you are the last guy holding out waiting for your money to come in?

I'm starting to get that creepy feeling and I started looking around for a bit of downside protection today. Started shifting away from a lot of my small-cap stocks into either cash or puts today.

Without question my "feelings" are very non-technical and would be thrown out the door by most traders - but having watched the market in the last few days (specifically the US), one can't help but get the sense that the market is running out of steam.

Thought this made for interesting reading - this is the volume traded on Put warrant TOPSBV which is a warrant issued by Standard Bank on the Top40.

Monday - 14 September - 13.5m warrants traded
Tuesday - 15 September - 1.3m warrants traded
Wednesday - 16 September - 6.4m warrants traded
Thursday - 17 September - 7.7m warrants traded

There is a lot of action around this warrant and I get the sense that people are starting to buy some protection against downside risk.

Looking at the US markets this evening I see that they seem to be bumping their heads around 9800 level on the Dow and people have stopped to ask themselves - what next?

I still have a long position on Anglo Gold which seems to be doing ok although I am watching it quite closely. If it doesn't kick on again tomorrow I might be tempted to exit it although I wouldn't be surprised to see gold move up going into the weekend. Looking at the ADR (AU:US) its off just under 2% but the JSE listed counter has not been helped by the dollar being so weak - a little slip in the rand and the gold shares could fly.

Warrants / spreads / products etc
An observation that I thought could be the opening for an interesting debate around linear and de-linear trading products in a market such as these.

I haven't traded warrants in ages, preferring to instead use things like the spread trading platforms offered by our favourite bucketshop. However I was finding myself getting stopped out at losses on that particular platform with some regularity even if the overall trend I was looking at was right.

While there has been this big move toward straight line products like spreads, knock-outs and binary options there is still an important place for a product such as warrants which can absorb some sideways volatilty (without hopefully being strangled by time decay).

The importance of picking the right product to work alongside your trade is often as important as picking the right trade - it means sweet bugger all if you can't execute on the right strategy.