Ice-cream Speculation
Two ice-cream sellers approaches your home
One sell chocolate for $5 another caramel for $2
The trader inside you scream like a maniac: how can you charge a lot to get a chocolate cone while your competitor priced much reduced?!
Outright
Scenario A
”Let me tell you how to conduct a fair price company --I bet that your price goes down, I am shorting 10 contract of you vicious chocolate guy!”
Scenario B
”Let me tell you how to run a profitable performance --I bet that your price will appear, I am longing 25 contract of you my venerable caramel friend!”
Spreading
”Let me tell you how to conduct a fair price company --I bet that your unjustifiable price goes down, I am shorting 10 contract of you, vicious chocolate man! In the mean time I am longing 10 contract of your competitor!
Market Neutral
I am shorting 10 contract of you while longing 25 contract of your caramel competitor!
Outright Goes South
Scenario A
Wait wait wait, your chocolate cone's price keep rising and there are more suckas prepared to pay for that???
Scenario B
What do you do, grow a pair and bring more demand caramel!!!
Market Neutral Goes South
Scenario A
Dang, chocolate cone price did go down, yet I did not short enough of it to offset the lost I took on caramel decrease at the same time!!!
Scenario B
Dang, caramel cone price did go up, yet I did not long enough of it to offset the lost I took on chocolate move up in the same time!!!
Scenario C
Chocolate keep skyrocketing, caramel keep stirring. . .Oh well, I guess I shouldn't have told them how to conduct their company?
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