Thinking about this for the 26th: 1) Treasuries up on equities fear. 2) Oil up to 140. 3) Equities seem in a capitulative mood (note I'm not calling a bottom ... just that the negativity is running extremely high). 4) VIX still low. The best conclusion I can come up as a responsive trade going into next week is to buy some 10 yr treasury ZN puts. My logic is this: 1) with futures edging up and lack of substantial data tommorow, will the yield fear trade have enough juice to continue if oil keeps up with its technical ascent? I say no. The inflationary tendencies are impossible to ignore, and yields either break OR -crude- breaks. Selling pressure on ZN. 2) If crude fails the 140 line and recedes on Thursday's EIA' bearish fundamentals rather than Libya talk-up (its pulling back right now), the market rallies and the fear trade (long treasuries) is off too. ZN down. 3) I am wrong if the S&P market crashes tommorow - but when in the world does the market crash when everyone is expecting it? The negativity was extreme. I read this and it turned me off from being bearish stocks: http://blogs.wsj.com/marketbeat/ (being such the contrarian I tend to be) 4) We'll see about follow thru, but VIX is not being aggressively bid. I think the equities is much less levered than earlier in the year and that explains this. Everyone and their mother is already short. So buying ZN puts is a proxy to getting long the equities market, but has potential even if the market falls lower as today's fear recedes. Oil continuing the ascent is good for bond shorts on a long term historical precedent (yields in the Volcker days serve as example), and oil falling is good for bond shorts on a recent market behavior precedent. It just makes sense. I like short bonds here and am not interested in my earlier in the year long bond bias anymore as we are already so far into the this 'crisis'. Any thoughts?
If you want to play the rebound just buy some suff like BIDU AAPL GOOG RIMM MA V. Those are the best rebound plays since they are purely market driven and have few external factors such as the dollar. OIL kinda sucks. It tends to fall for no reason and then when it does happen to go up a few bucks people make a huge deal about it. Meanhiwle stocks like KOL, PCX and MOS keep making new highs.
hey scrib.. why not buy 30 year puts instead? they should be much weaker on a run higher, and much weaker when we move lower...
Yea I agree. Although lately they seem interchangable -- both the ten and thirty year seem to have the same (or close) volatility lately. By the way, I was so inspired this and spreading crude is now the subject of a latest blog. http://scriabinop23.blogspot.com/2008/06/historic-analysis-of-crude-against-30.html Please comment.
Short Sep ZN from an average of 113'31. FWIW, ZB puts are very cheap here at 8.15% vol on the Augs. Vol has dropped a full 100bp in the last week. Bought ES at an average of 82.00 near/after the NYSE close. Short ZN from 13'31 Long ES from 82.00 Long XLF $20.62 Long USDJPY from 106.14
Wow. talk about correlated trades. I got long USDJPY as well at 106.25. What ES are you talking about (is that the price of an ATM option 5 months out? :] ) I'm in all the same positions as you...