rolling out to mar zn

Discussion in 'Financial Futures' started by loyek590, Nov 30, 2014.

  1. loyek590

    loyek590

    can anybody tell me why I shouldn't just go short zn? Maybe not make anything in Mar, or even 2015, but someday? Looks like a no brainer to me. What am I missing?
     
  2. Erm, well, you're missing the fact that this trade can lose you a lot of money... Also, you're paying for the privilege being short.
     
  3. What's zn ? If I don't even know what it is, how can I tell you if it's any good ?
     
  4. loyek590

    loyek590

    well, you are almost always right, far be it from me to take the other side, that's what I was asking for, someone to talk sense to me. How would I lose a lot of money? I'll give you that I lose for the privilege of being short.

    You tell me, who in their right mind thinks rates will go lower? Yes, they may just stagnate for all eternity and I'll get killed on the cost.

    otherwise, I have no interest in pledging my hard earned money on a stagnant trade. It seems you have more knowledge than me, Could you expand on why it is a bad long term trade?
     
  5. clacy

    clacy

    Shorting bonds has been a really bad trade in Japan for about two decades now.

    I think they dubbed it "the widow maker" as a matter of fact.
     
  6. eurusdzn

    eurusdzn

    EDZ2019 or similar to express long term view on short yerm rates. 3 months.
     
  7. Well, I have no idea if it's a good or bad long-term trade... That is, I am not saying it's a bad trade. One problem is that there are lots of people out there, who think this way (a lot fewer after this year's bloodbath). The other problem is that there are all sorts of possible outcomes where you do lose a lot of money. Specifically, if rates stagnate, as you describe, you're going to lose, since you're shorting a bond that yields 1.9%. Finally, the last problem is that this trade requires good timing. For instance, if rates sell off mildly, after a few more years of what we're experiencing today, you might still end up losing money. Just try to imagine a few scenarios and you'll get a sense of what your payoff is likely to be. I can tell you that this year, a lot of very famous macro guys got absolutely killed on their rates shorts.
     
  8. loyek590

    loyek590

    yeah, that sounds like good advice, glad I ran it before you first. Just because something goes down pretty much like a predictable rock sinking in a lake doesn't mean it will rise to new glory.

    I wasn't involved in the bloodbath, but I did sell too early, about 126

    Like they say, "Never wrong, often early."
     
  9. eurusdzn

    eurusdzn

    My 02 cents is that the fed controls short term rates. There is no uncertainty to that.
    It is less certain that the market will respond to fed policy further out on the curve.
    This could be another conundrum, circa 2005ish , with a curve flat and possibly inverted if fed funds raised.
    Can anyone here envision and inverted curve 5 years from now? Not me.
    Seems tougher to take a guess of rates 10 years+ out on the curve.
    I beleive there is less uncertainty that 3 month rates 5 years from now are mispriced today
    and will be lower if not ZIRP then.
    So, outright eurodollar futures to express LOWER short term rates than presently priced is my guess.
    Seems this has also been the markets guess for a while now as well.
     
  10. loyek590

    loyek590

    I don't know that much about it. It's obvious I have no experience trading bond futures. All my experience was in cash bonds in bond mutual funds in my conservative account. After about ten years of 6% at about 7 year duration it just got to where I was more worried about rates than the Dow Jones. I tightened up to 1.5 years, and then just said, "The heck with it, I'd rather be in cash, even if I am losing each year due to inflation."

    seems like it is a no brainer to bet on rising rates. But people with more brains than me advise otherwise

    I just looked at that new MAR zn contract on my screen and thought, "Why not sell it? Start small roll out and hold on for years."

    Apparently it's not that easy.

    It's always good to ask for opposing points of view.
     
    #10     Nov 30, 2014