carleygarner
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Weekly jobless claims ignites Treasury futures
Bond and note futures traded quietly lower throughout the night but the early morning release of new filings for unemployment hit the airwaves, all "heck" hit the fans. At one point during the session, the long bond was up over a handle and a half to touch upon the 135 level in the September futures contract. The 10-year note reached a high of 126'05 before stabilizing.
The market's complacency was all but wiped away as it discovered 500,000 new filings for unemployment benefits in the most recent week. Consensuses estimates were for 475,000...which was already a weak stat. The nail in the coffin of the bond bears was a draw of 7.7 in the Philadelphia Fed index. Most were looking for an increase of about that amount.
There has been a lot of talk recently of the desperately low yields offered by Treasuries and the idea that investors aren't buying government issued securities for the coupon payment but for potential appreciation instead. So far, that has worked...but if the overall idea of investing is buying high and selling low, it seems that buying Treasuries at this level could eventually end in disaster...remember the tech bubble, or more recently the real estate bubble? Unfortunately, timing is everything and picking a top can be treacherous before it is prosperous.
If you are willing to risk a bit of money on being bond bearish, but want to limit your risk should we see a repeat of the December 2008 disaster, it might not be a bad idea to play the market with synthetic options. For instance, selling a December 10-year note futures near 126 and then purchasing an October 126 call for about $1,000 limits your risk of loss to the amount paid for the protective call plus or minus the distance from your futures fill and the strike price (plus transaction costs, of course). The payout is similar to simply buying a put, but the flexibility is key...if the market rallies further it might be possible to sell the call at a profit and replace it with a stop order for the futures. Alternatively, if you are able to offset the futures at a profit later on it might be worthwhile to hang on to the call options in hopes of another rally. The same strategy can be done using the 5-year note futures for half the price and risk!
Yesterday we noted resistance in the long bond and note near 135'03 and 126'25 and we are sticking to it. If stocks managed to hold support, the long bond could correct to the 130 area and this would mean 124 in the note.
If you have bullish positions, you should be covering, tightening stops or placing hedges. If you have bearish positions, don't throw in the towel quite yet but denial never works either. We are looking for counter-trend Friday and if we get it...some risk adjustments might be necessary.
* 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. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
8-10-10 Clients were advised to sell the October 135 calls for 24/27
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
*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.
Weekly jobless claims ignites Treasury futures
Bond and note futures traded quietly lower throughout the night but the early morning release of new filings for unemployment hit the airwaves, all "heck" hit the fans. At one point during the session, the long bond was up over a handle and a half to touch upon the 135 level in the September futures contract. The 10-year note reached a high of 126'05 before stabilizing.
The market's complacency was all but wiped away as it discovered 500,000 new filings for unemployment benefits in the most recent week. Consensuses estimates were for 475,000...which was already a weak stat. The nail in the coffin of the bond bears was a draw of 7.7 in the Philadelphia Fed index. Most were looking for an increase of about that amount.
There has been a lot of talk recently of the desperately low yields offered by Treasuries and the idea that investors aren't buying government issued securities for the coupon payment but for potential appreciation instead. So far, that has worked...but if the overall idea of investing is buying high and selling low, it seems that buying Treasuries at this level could eventually end in disaster...remember the tech bubble, or more recently the real estate bubble? Unfortunately, timing is everything and picking a top can be treacherous before it is prosperous.
If you are willing to risk a bit of money on being bond bearish, but want to limit your risk should we see a repeat of the December 2008 disaster, it might not be a bad idea to play the market with synthetic options. For instance, selling a December 10-year note futures near 126 and then purchasing an October 126 call for about $1,000 limits your risk of loss to the amount paid for the protective call plus or minus the distance from your futures fill and the strike price (plus transaction costs, of course). The payout is similar to simply buying a put, but the flexibility is key...if the market rallies further it might be possible to sell the call at a profit and replace it with a stop order for the futures. Alternatively, if you are able to offset the futures at a profit later on it might be worthwhile to hang on to the call options in hopes of another rally. The same strategy can be done using the 5-year note futures for half the price and risk!
Yesterday we noted resistance in the long bond and note near 135'03 and 126'25 and we are sticking to it. If stocks managed to hold support, the long bond could correct to the 130 area and this would mean 124 in the note.
If you have bullish positions, you should be covering, tightening stops or placing hedges. If you have bearish positions, don't throw in the towel quite yet but denial never works either. We are looking for counter-trend Friday and if we get it...some risk adjustments might be necessary.
* 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. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
8-10-10 Clients were advised to sell the October 135 calls for 24/27
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
*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.
