Treasuries undecided
Bonds and notes waffled on both sides of unchanged in Tuesday's session as the bears focus on supply and the bulls argue a flight to quality. In the end, the day's trade was a relative wash.
Light volume likely played a big part in the day's price swings. After being under pressure in early trade, Treasuries rallied back in anticipation of a 3-year note auction, but then pared gains on post-auction trade. Demand for the government issued notes was strong, but the yield of 1.519% paid to buyers was at a higher than expected. There was a 54% indirect bidder participation, which suggests that foreign investors continue to like the safe haven of Treasuries.
In the absence of economic news, equities have once again become the primary force behind price moves in the bond pit. Equities have struggled in recent weeks and are approaching significant support areas and it could be "make or break" time. For instance, the S&P must hold the mid to low 870's to avoid a sweeping move to the 850, and possibly even 840 area. Should the mid-870's be seen in the S&P bonds and notes should get a lift. The dollar on the other hand, offers little directional help. The September index has been range bound for weeks, with little indication of the next move.
Treasuries are simply too quiet; we don't expect this to last long. It seems as though the long bond is preparing for another large rally. If you have bearish positions in this market I recommend playing it close to the chest. I see potential for the September 30-year bond to see prices just under 121. This rally likely won't happen should equities hold their ground, but my analysis suggests that it is a real possibility. That said, if it does happen it should be a great time to sell calls and/or buy puts. Aggressive traders may even want to execute a bear put spread with a naked leg. This involves selling a call, buying a put and then selling a distant put to pay for the trade. If you are interested in learning more, check our websites for free articles or pick up a copy of "Commodity Options" published by FT Press.
We have been continually noting the mid 117's in the note as a potential upside target, we are now thinking a bit higher from here. Look for just under 118 for an opportunity to be a bear. If you are following the 5-year note trade below, I hope that you purchased the call option as insurance as we suggested. It seems like we may be a little early to catch this move. I would prefer not to see it, but 116 looks like the next stopping point. If you don't like the trade, you can get out or sell a 115 put to bring in about $500. It this will basically create a trade in which it is hard to lose money, but hard to make it to....but breaking even may not be a bad thing.
**Seasonality is already be 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.
June 26th - We recommended that our clients sell the August Bond 124 calls for 20
• We recommend buying this back for 6 or less.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.
Bonds and notes waffled on both sides of unchanged in Tuesday's session as the bears focus on supply and the bulls argue a flight to quality. In the end, the day's trade was a relative wash.
Light volume likely played a big part in the day's price swings. After being under pressure in early trade, Treasuries rallied back in anticipation of a 3-year note auction, but then pared gains on post-auction trade. Demand for the government issued notes was strong, but the yield of 1.519% paid to buyers was at a higher than expected. There was a 54% indirect bidder participation, which suggests that foreign investors continue to like the safe haven of Treasuries.
In the absence of economic news, equities have once again become the primary force behind price moves in the bond pit. Equities have struggled in recent weeks and are approaching significant support areas and it could be "make or break" time. For instance, the S&P must hold the mid to low 870's to avoid a sweeping move to the 850, and possibly even 840 area. Should the mid-870's be seen in the S&P bonds and notes should get a lift. The dollar on the other hand, offers little directional help. The September index has been range bound for weeks, with little indication of the next move.
Treasuries are simply too quiet; we don't expect this to last long. It seems as though the long bond is preparing for another large rally. If you have bearish positions in this market I recommend playing it close to the chest. I see potential for the September 30-year bond to see prices just under 121. This rally likely won't happen should equities hold their ground, but my analysis suggests that it is a real possibility. That said, if it does happen it should be a great time to sell calls and/or buy puts. Aggressive traders may even want to execute a bear put spread with a naked leg. This involves selling a call, buying a put and then selling a distant put to pay for the trade. If you are interested in learning more, check our websites for free articles or pick up a copy of "Commodity Options" published by FT Press.
We have been continually noting the mid 117's in the note as a potential upside target, we are now thinking a bit higher from here. Look for just under 118 for an opportunity to be a bear. If you are following the 5-year note trade below, I hope that you purchased the call option as insurance as we suggested. It seems like we may be a little early to catch this move. I would prefer not to see it, but 116 looks like the next stopping point. If you don't like the trade, you can get out or sell a 115 put to bring in about $500. It this will basically create a trade in which it is hard to lose money, but hard to make it to....but breaking even may not be a bad thing.
**Seasonality is already be 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.
June 26th - We recommended that our clients sell the August Bond 124 calls for 20
• We recommend buying this back for 6 or less.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.
