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Follow through buying next week in Treasuries?

Carley Garner
In Financial Futures
by Carley Garner at 3:12 pm on January 15, 2012

January 13, 2012

Click here to read Carley’s latest Stocks & Commodities Magazine column on the realities of the forbidden word (commission).

Follow through buying next week in Treasuries?

News of more credit rating downgrades plagued risky assets and gave investors a reason to put money back into the safe-haven of Treasury securities.  Although bonds and notes were up measurably on the session, we could have easily seen much more panic.  Not because the ratings cut was a surprise, but because of the timing of the announcement (ahead of a three day weekend in the U.S.).  One has to question the S&P’s timing (once again).

Standard & Poor’s actions to downgrade a handful of European sovereigns was well telegraphed but they must know that the lack of access to the markets on Monday (Martin Luther King Day) has the potential to cause unnecessary stress, and possibly panicked trading.   In light of the holiday, the trading pits in downtown Chicago will be closed on Monday but the electronic Globex markets will be open from Sunday night through Monday morning for an abbreviated and likely sparsely attended, session.

In addition to the S&P announcement, the Treasury rally has been supported by this week’s Fed speeches.  Most Fed members seem to be maintaining a dovish stance and this keeps the door open for even more QE stimulus (and therefore potentially lower yields).

A recent Italian bond offering at a lower than expected yeild but questionable demand provided temporary relief to selling in the Euro and might have been enough to send bonds reeling in the absence of the credit downgrade.  Nonetheless, the technicals are strong and the rally appears to be gaining steam.

In this newsletter we’ve been patiently waiting for a rally to take us to the 132ish area in the note and to the 146/147 area in the long bond.  Specifically, we are currently looking for the March 10-year note to make its way into the mid 132′s and the bond should see the mid to high 146′s or maybe even a bit over 147.  However, we’ll likely start to lean lower from there.  For those that like to sell options, we are hoping volatility increase enough to be able to get some of the March calls off at strikes in excess of 153 with respectable premium.

* 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.

Flat

In other markets….

12-29 – Clients were advised to sell the March crude 122 call and the 78 put for a combined premium of about $1,000. These options have 49 days to expiration and we believe time value erosion will be most noticeable from 45 to 28 days.

1-3 – Clients were recommended to sell the February S&P 1340 calls for about $8.00 ($400 in the mini contract).  We are looking for the market to digest or pullback its recent rally…but prefer to give it room to breathe.

1-3 – Clients were advised to sell the February 123/136.50 Euro strangles for about $700 in premium (56 ticks).  These options have 32 days to expiration and are vulnerable to accelerated premium erosion in the absence of a significant change in market fundamentals.

1-5- Clients were advised to buy back the short 136.50 calls in the Euro for about 10 ticks to lock in a quick profit ranging from $200 to $240 (depending on fill prices on the way in and out).  We’ll look for a place to buy backthe put in the coming days.

1-6- Clients were advised to sell February Euro 117 puts for about 40 ticks ($500)

1-9- Clients were advised to take a profit on the March crude oil 78/122 strangles.  Most clients netted between $400 and $450 per lot.

1-10 Clients were recommended to buy back the march Euro 117 puts near 21 to lock in a profit of about $230 before commissions and fees.

1-11 Clients were advised to sell the Euro 118 puts for 33 ticks or $412.50.

(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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*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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