Axia Futures
In the morning of Monday 9th November 2020, the world welcomed a huge milestone in the war against the pandemic as Pfizer announced that its experimental Covid vaccine was found to be 90% effective in preventing Covid infections.
This announcement on the vaccine’s efficacy surpassed even the most optimistic expectations and as a result it sparked huge Risk-On across the financial markets, with global stock markets rocketing while safe-haven government bonds and Gold tumbled.
This event created big opportunities for global macro day traders who were able to execute trades as soon as the announcement got released.
In this article we will explore how our top AXIA macro trader reacted to this event, as we go through his trading execution step-by-step and see what was going through his head as he was trading the extreme volatility sparked by the event.
We will see how he truly maximised the opportunity presented, by aggressively executing large positions across five futures markets to achieve a 7-figure P&L in the space of a few minutes after the announcement hit the wires.
Watch The Live Trading Recording:
Background: The significance of a highly effective vaccine
The fight against the pandemic and the recovery of the global economy rests on vaccination of the world’s population. Only then we will go back to normal and the world’s economies will emerge from a pandemic-induced recession.
After successful and promising Phase 2 studies from the frontrunner vaccine manufacturers, the whole world and the financial markets were focusing on Phase 3 study results. These studies involve around 40,000 people and are the final hurdle before the health authorities approve and start manufacturing the vaccine.
For a couple of months now the markets were eagerly waiting for results from the companies that were near completion of the Phase 3 study and these are: Pfizer+Biontech, Moderna and Astrazeneca.
The preliminary results of these studies would show us 1) if the vaccine has been effective and 2) what was the Efficacy rate in the study (i.e. what percentage of people who took the vaccine actually achieved immunity)
Market Impact on different sectors of the economy
For traders and investors around the world, these results would have huge implications in the financial markets. The FDA had stated that a vaccine with around 50-60% efficacy rate would be good enough for approval so this was more or less the minimum threshold.
But at the same time if this efficacy rate was a lot higher then it means that we would get out of the pandemic much faster than expected. The baseline expectation based on Phase 2 studies was that the vaccine should be at least 60% effective, the higher the better.
The vaccine results would have a different impact on different sectors of the economy. Since the beginning of the crisis we have seen the cyclical and value stocks (like the big industrial names) get battered while some of the huge tech companies like Amazon, Netflix and other stay-at-home stocks managed to weather the storm and outperform significantly, as their revenues exploded.
So we have effectively seen a big rotation from value stocks to tech stocks. This massive rotation is best reflected when we compare the Nasdaq 100 index over the last 9 months vs the Russel 2000 or the Dow 30 index. Looking at the chart above we can see how Nasdaq has massively outperformed the Dow since the March lows. The Nasdaq took out its previous all-time-high on 5th of June and kept rallying since, whereas the Dow only took its previous ATH in the futures on the Pfizer Covid Vaccine announcement day (9th November).
Trading Scenario Analysis
In terms of trading execution, it is quite obvious that a highly effective vaccine (high efficacy rate) should spark big risk-on. On the flipside, if for any reason the Vaccine does not meet its primary endpoint and its not proven effective enough, expect HUGE risk off across the board in the markets.
Having said that, it’s also key to select the markets that offer the best risk-reward potential when the announcement hits. Going back to previous reactions to positive Phase 2 study results as well as other therapeutics announcements, we could see that the biggest impact is on the Equities (and more specifically on the big industrial names and value stocks). So in this case we expect markets like the Dow, DAX, Russel, Spoo to react big to the upside while the Nasdaq undeperforms.
Nonetheless, if the announcement causes huge risk-on, you would also expect government bonds/gold to sell off as investors would pair their stimulus and easing bets going forward.
Pfizer announcement hits the wires
At exactly 11.45am on the day, Pfizer releases a statement saying that its Covid vaccine is found to be over 90% effective in its large Phase 3 study. This was a bombshell statement which beat even the most optimistic expectations and an enormous milestone in the fight against the pandemic.
The 90% efficacy finding for the vaccine produced by Pfizer far outstripped expectations of a 60-70% reading among analysts and compared to around a 40-60% efficacy rate for seasonal flu vaccines.
Such a high efficacy rate meant that the global economy could recover faster than previously expected and this was a very big positive development. As one would expect, huge risk-on was sparked by this announcement, and within the first few seconds, global equity markets skyrocketed.
Elite trader reaction to the news – Building the big positions
As we have seen with past streams, our Elite trader is renowned for trading these types of events, executing with maximum conviction and aggression, hitting the markets as hard and as fast as possible.
As soon as the results of the study were released, he bought 400 E-mini S&P and 90 DAX. Within the next few seconds his PnL was printing over $300,000.
In his head, this was a massive event and a huge opportunity to possibly achieve his best day ever, so at this stage all he is thinking is how to add to his positions and take even more risk. As he explained, in situations of extreme volatility like this event, he manages to stay focused by visualising the huge reward if the trade works out as he expects.
He knows how significant this news is and he won’t rest until he exposes himself to the maximum risk he is willing to take. So as the equity futures keep exploding higher, he also goes and buys 150 lots in the E-mini Dow. He feels the Dow offers great risk-reward as he is convinced the value and big industrial stocks will massively outperform on this announcement.
15 seconds after the announcement, and as the price action across markets confirms his thoughts and conviction, he feels he would like to take even more risk, so while he is around 650 lots long across three equity indexes, he goes and sells 540 bunds.
At this point, I felt I got as many limits as I wanted on the equities but I quickly glanced at the bonds and realised that they hadn’t moved much.
I thought this news was a game changer for all asset classes across the board, and I felt that there was potential for the Bund to get sold big on this, given how tight and contained it had been in the last few sessions.
AXIA Elite Trader
As he explained, he felt that there was big potential for both Bunds and Treasuries to eventually tumble on the huge risk-on sentiment, and on the assumption that central banks might end up scaling back their huge monetary stimulus faster than expected, as the highly effective vaccine would normalise the economy faster than previously forecasted.
Managing the trades – Scaling out & locking profits
After building those big positions across markets, then it was all about managing the trades as efficiently as possible in order to maximise the P&L. As per his usual execution strategy that we saw on previous streams, he is jumping from one ladder to another, scaling out the positions and locking profits.
Keeping a close eye on correlations and order flow of his main ladders he could get a feel for the overall sentiment and identify which markets were overreacting and which were lagging behind. He uses this information to keep adjusting his positions.
In just over 2 minutes after the announcement his P&L broke the 7-figure barrier and that’s when the equities started pulling back from the extremes. At this point he decided to start cutting his exposure on the equities while holding the majority of his bond positions.
I realised that the Spoo had done over 50 handles in around 2 mins. Dax did over 250 ticks!
My thought process at this stage is: This is a very big move in a very short timeframe, and even if we go further eventually, there’s a strong chance that we pull back significantly before the second leg.
So if I see the equities start stalling or pulling back at this stage, then I am ready to cut my risk significantly.
AXIA Elite Trader
His rationale here is that the bonds hadn’t really moved far enough in relative terms and as compared to the huge equity moves. He felt there could be a big delayed reaction in the bonds and he was willing to stick with the trade and not scale out, as he was confident that powerful bearish flows would eventually start hitting the bond space.
It soon turned out that the pullback in risk was short-lived, and equities started making new highs. Although he was a bit upset at this stage that he had covered most of his equity positions, he felt that at the time, being short the bonds offered a better risk-reward opportunity. Over the next ten minutes, the bonds rolled over as he expected and he managed to add significantly to his PnL.
At the same time, he started feeling that the equities had over-extended to the upside at this point. As the NASDAQ started leading the way down as big tech and stay-at-home stocks started getting hit, he took a few short positions in S&P, Euro Stoxx and Nasdaq, and as those positions paid off, he managed to achieve his best day ever, netting over $1,300,000.
Key takeaways from the Elite trader execution
The YouTube video embedded in this article offers invaluable insight into the execution methodology of AXIA’s largest trader, by analysing in great detail his strategy and thought process as he is trading multiple markets simultaneously in extremely volatile conditions.
Our elite trade has cultivated his edge and skill-set in trading global macro events with such confidence and conviction over a career spanning 10+ years. This enables him to put the big size on whenever he feels there is a big risk-reward opportunity to be taken.
As he explains, he always visualises these mega days, i.e. he is using his mind to see his execution over a potential big trade on a certain event, and this makes him super prepared and focused for when the event does happen.
As we have seen he will not hesitate to hit as hard as possible and as fast as possible, and once he is happy with the size he exposed himself to, he will focus on managing the trade actively using his peripheral vision of observing all correlated markets. This enables him to feel the overall sentiment so that he can tweak his execution and adjust his positions accordingly.
To see more examples of his trading execution on other big fundamental events, such as geopolitical events and central bank policy meetings, visit the AXIA Elite Trader playlist on our YouTube channel.
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Demetris Mavrommatis – Co-Founder, Head of Trading
Alex Haywood – Co-Founder Head of Strategy
