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DeCarley Trading Bond Bulletin
Stocks & Options Trading Newsletter | Carley Garner

Fed Speaks, European Banter, Greek Riots, EU Summit…Treasury traders held captive!

October 20, 2011

 

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Fed Speaks, European Banter, Greek Riots, EU Summit…Treasury traders held captive!

 

Bonds and note traders have had a difficult time picking a direction as of late…and who could blame them?  There are a seemingly unlimited number of uncertainties, with this weekend’s European summit at the forefront.  There were multiple “rumors” (we lost count)  throughout the session suggesting that the EU meeting would be postponed; each instance triggered immediate equity market selling and Treasury buying.  Nonetheless, the long bond and notes settled moderately into negative territory to end the session.

 

In addition to this weekend’s European summit, business news televisions insist on highlighting images of the violent protests in Greece…if you recall, this was one of the triggers of the May 6, 2010 flash crash.  Based on the timing of Treasury upticks during the session, it is clear they haven’t forgotten.  Although most probably aren’t looking for a repeat, they are certainly a little more prone to buying as things heat up in front of the Greek Parliament building.

 

Don’t forget, we have several auctions on tap.  The Treasury will be issuing $35 billion in 2-year notes next Tuesday, $35 billion in 5-year notes on Wednesday and $29 billion in 7-year notes on Thursday.  As we have seen in the past, the market has a tendency to reverse course at or near auctions…and we don’t think this occasion will be different.  In fact, it feels as though investors will be interested in allocating money into Treasuries given the recent increase in yield.  If so, strong demand at the auctions might be what this market needs to pull itself out of the ditch.

 

Seasonal tendencies are bullish for Treasuries, so the bears should be protecting profits…and now is probably not the time for position traders implement fresh shorts.  We think the best play will be from the long side on a large dip…specifically, we think positive news out of Europe could cause selling that brings the December 30-year bond under 137, and if things get really out of hand possibly as low as 135.  However, we turn bullish in the mid to low 136’s.  If you are trading the 10-year note, look for similar levels at 127ish, with a possible spike lower into the mid to low 126’s.

 

 

 

 

 

 

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

 

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

 

Treasury Bond and Note Option and Futures Trading Recommendations

**There is unlimited risk in naked option selling.

 

9 – 6 – Some clients are holding synthetic puts in the 5-year note in which they are short December futures contracts and long December 123 call options.  Depending on entry, total (limited) risk on the trade is between $700 to $800 and we have until late November for something to happen.

 

10-7 Clients were advised to sell a December 5-year note 121.50 put for about 24 ticks.  This reduces the cost of the trade and hedges against a possible bounce during the holiday weekend.

 

10-11 Clients were recommended to offset the short 5-year note future and the short 121.50 put for a combined profit of about $900 before commissions and fees and dependent on exact entry and exit prices.  However, losses on the original hedge (long 123 calls) diminish the profit.  We are looking for a Treasury recovery to give us an opportunity to offset the long call at a much better price (smaller loss).

 

10-20 Clients were recommended to sell the remaining remaining leg (December 123 call for 13 ticks) from the five year note synthetic to salvage some of the premium paid to insure the short futures contract in the previous trade.

 

In other markets….

 

10-11 Clients were recommended to sell strangles in the November Euro (142/128 for conservative traders and 140/130 for aggressive traders), or December crude oil (98/67 for conservative traders and 96/70 for aggressive traders).

 

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more.  Email us for more information)

 

 

Carley Garner

Senior Analyst / Commodity Broker

DeCarley Trading

cgarner@DeCarleyTrading.com

1-866-790-TRADE

Local : 702-947-0701

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http://www.DeCarleyTrading.com

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*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

 

There is substantial risk of loss in trading futures and options.

 

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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