Event Risk Trading Protocal

There is a time when having an open trade during an important event can maintained, if the probabilities are strongly in your favor. Keeping our long trade open during Bernanke's speech was a risk, but there were several important factors that lead me to take it.

1. Obviously the market was well aware of Bernanke's speech and they had also become aware of the speech (and its contents) that was to be given by Bush about 1 hour later. Usually what we see in the hours leading up to events like this is nothing; little if any price movement. In the hours leading up to these events, prices in the equity indexes were moving up while bond prices were trending down. This was a strong indication that the speeches were going to be taken as a net positive.

2. Because 3 mo T-Bills are a proxy for credit markets, we have been observing the movements there to give us an idea of the overall 'health' of this critical sector. During the previous day yeilds had moved strongly up, indicating that participants were more willing then before to get back into the ABCP market (an early sign of easing liquidity).

What I would like to do is to set a policy here. What I would suggest is that no trades be kept open during events, no matter how the indications look. The reason is based on what I refer to as a 'percentage'. The less percentage that exists, the less I want to be associated.

If an event is truly a huge trading oppurtunity, there will be plenty of time to get into the market and make a profit. Not holding a position during an event will protect us from a loss. That to me is a better way to trade. Therefore, in the event that a situation like this presents itself again my suggestion is that no trades should remain open during an event.