Quietly lower but 30-year bond auction on tap
February 8, 2012
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Quietly lower but 30-year bond auction on tap
The following newsletter is an example of what is provided to DeCarley Trading’s clients. This was sent out on 02/08/12. Would this have been helpful to you?
Trade is painfully quiet. It is almost as if traders took off for the holidays and never came back.
Thus far this week’s auctions have been a tad disappointing, but the ever volatile 30-year bond issuance will take place tomorrow. Unlike earlier in the week in which traders appeared to have lofty expectations, the bar seems to have been lowered for this outing. As a result, we could see some pre-auction selling across the curve.
The Treasury Department issued $24 billion in 10-year notes at a rate of 2.02%. The bid to cover was 3.05, a little lighter than the 3.11 average; trade had little noticeable reaction to the news. We can’t help but continue to beat the “supply” drum…with the U.S. government and corporations issuing low yielding debt by the truckload the market might eventually have trouble absorbing the supply.
We still think the path of least resistance will be lower for Treasuries in the coming days. However, with uncertainty surrounding the Greek “deal” the market will likely continue to hold its trading range. Accordingly, look for the long bone to see 141 to 140’20 in the short-term. However, this area might be a place to consider being a bull.
Don’t forget:
A trade that has worked well in the past is a countertrend post auction trade. In other words, getting bullish on large dips following the upcoming auctions might be the best trade from here.
* 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.
1-17- Clients were advised to sell the March 5 year note futures contract near 123’19 and purchase the June 123.5 call for about 43 ticks to insure the trade (limit risk to about $650ish before commissions and fees). This trade has a lot of time, unlimited profit potential and closed risk.
1-23 Clients were advised to lock in a profit on the short 5-year note futures contract near 123. Depending on fill prices, this leg of the trade netted about $550 to $600 per contract before transaction costs. We are still holding the long call that was purchased for protection.
1-23 – Clients were recommended to sell the March Bond 134 puts for about 29 ticks, or $453.
1-25 – Clients were advised to buy back their short 134 puts for about 13 ticks prior to the Fed announcement. Assuming an entry of 29 and exit of 13, the profit was $250 per contract before commissions.
1-25 - It was recommended that our clients re-sell the 5-year note futures contract (bought back at a profit on Monday, see above) near 123’23. In light of the profit on the first entry, this is now nearly a free trade (ignoring transaction costs and slippage), limited (almost no) risk and unlimited profit potential from here.
1-25 – Clients were advised to sell March strangles using the 137 puts and the 147 calls for about 47 ticks or $735.
1-30- Clients were advised to buy back their 137/147 bond strangles, for a small loss and replace the premium by selling the 140/149 strangles…to give the market a little bit of breathing room.
2-3 – Clients were advised to buy back their 147 calls to lock in a profit on that side of the trade. Fills were reported near 7 ticks, depending on client entry this was a profit of anywhere from $230 to $312 per contract.
2-3 – Clients were recommended to buy their 140 puts back at a small loss ( about $230 per contract) and sell a 139/145 March strangle to replace the premium for about 1’04 ($1,062.50).
In other markets….
1-18 – Clients were advised to sell March S&P 1370 calls near $9 in premium ($450 per mini contract).
1-23 – Clients were advised to sell March Euro strangles. It was recommended that those holding long 137 calls (as a flyer just in case of a short covering rally) sell the 136.5/123 strangles for about 69 ticks or $862.50. Traders without this long call, sold either the 138/122 strangle or the 127.50/122 strangle for about 44 ticks or $550.
1-26 – We recommended that clients offset their long March Euro 137 calls near 40 ticks to lock in a profit of about $250 per contract. This leaves our short strangle unhedged.
2-7- We advised our clients to buy back their short 122 and 123 puts in the Euro to lock in a profit on that leg of the trade. We are still holding the short Euro call portion of the trade. Profits on the 122 puts ranged from $212.50 to $250, most made about $300 on the 123 puts.
(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
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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.
