All eyes on employment report…non event?
April 5, 2012
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All eyes on employment report…non event?
Traders spent the day preparing for tomorrow’s employment report. Positioning ahead of the news is a bit more complicated this time around simply because the most influential piece of economic data of the month will be released on a day in which the markets are essentially closed.
As we’ve been noting in this newsletter, the futures markets will trade overnight and close early in the morning (10:15 am Central for Treasuries) but the cash market for both bonds and stocks will be closed. We have a sneaking suspicion that although the futures markets will be open, there won’t be “anybody home”. Volume will likely be extremely light and this could breed volatility. In addition, traders will only have a few hours to digest the news before the CME closes up for the holiday weekend.
There also seemed to be a substantial number of traders looking to the option market for an alternative to playing in what could be a dangerous futures market. Traders were willing to bid prices on out-of-the-money options in the long bond to relatively high levels which tells us traders are expecting a rather large move on the news. However, our antagonistic view of the world leaves us leaning toward the opposite scenario…and non-event.
After all, we’ve had two days to digest and react to the ADP employment report which has been steadily improving in accuracy. Also, the long bond has experienced several massive swings but has failed to make progress in either direction in a little over a week. Highly volatile but ultimately directionless trade such as this often resolves itself with a “dead” market. This is because the day and swing traders typically suffer from the whipsaw causing trading volume and volatility to die as they move to the sidelines to recoup.
Analysts are looking for about 200,000 jobs added to the economy in March, with 215,000 in private sector jobs. Anything over 180,000 on the headline could be considered bearish but anything under could be supportive. We’ve recommended our clients sell strangles in attempt to benefit from a potential reduction in volatility…let’s see what happens!
In the coming sessions, look for resistance in the June 30 year near 140′25 and again near 143′02. The pivot price is currently 137′24 (above bullish, below bearish); look for intermediate term support near 136 and 124′25.
* 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.
3-14 Clients were advised to sell the May132 30-year bond put for about 29.
3-15 Some sold 131’s for about 28 ticks.
3-23 Clients were recommended to buy back their 131 puts near 11 ticks to lock in a profit of 17 ticks or $265 per option. They were also advised to buy back 132 puts near 14 to lock in about $234 per contract.
3-26 It was recommended to clients that they sell the May 141 30-year bond calls and the May 133 puts for a combined premium of about 46 ticks or $718 before commissions and fees.
3-30 Clients were advised to buy back their short bond 133 puts (part of strangle above) at 7 ticks, to lock in a profit of about $280 per contract before commission (fill prices fluctuate slightly).
3-30 Clients were advised to offset their bond calls on the pullback at a price of about 17 ticks to lock in a small profit on this leg of the strangle, but a respectable $380 (approximately depending on fills and before transaction costs) when considering the profit on the call strike.
In other markets….
3-13- It was recommended that clients sell the May S&P 1450 calls for about $8.75 in premium or $437.50 per contract.
4-2 Clients were advised to sell June soybean 1570 call options for 8.5 to 8.0 cents.
4-4 Clients were advised to buy back their May S&P 1450 calls for about $6. This locks in a small profit of anywhere from $100 to $150 before transaction costs depending on fills. We felt it was worthwhile to exit ahead of the payroll report to lighten risk exposure.
4-4 Clients were advised to sell corn strangles. Strikes and fills varied slightly (730/600 strangles for 14.5 cents, or 720/605 strangles for about 16.5 cents)
(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)
Senior Analyst / Commodity Broker
Local : 702-947-0701
*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.
Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.