You are going to need one hell of a move to make money on say the 100 or 90 something 10yr puts since volatility is at pretty much all-time lows. With that said you will be buying them for 1 tick but they are probably in reality worth pretty close to zero ticks. Probably also going to have to roll them every month and incur those commissions for the next few months to years at least. Best of luck to you in your endeavor.
haha... some bizarre short dollar...short 10 year...long gold...short S&P option OTM pile up trade.......something that I can brag about in 10 years
Its like waiting for godot. I am surprised that there hasn't been something like february 27 for the bond market. It seems way to long.
the guesssing game is what the deleveraging will gavitate to..... gold or some hybrid of busted debt and some hard asset such as a platinum/gold/silver product..... cash may not be the ultimate ground zero since what do you do next.....and who will take the counter party trade..... during the '87 crash, gold got hit since margin calls in whatever got nuked along with all other classes.............. frozen in the headlights.........
This item is from today's FT: Market volatility, as measured by Merrill Lynch s MOVE index of 30-day Treasury options, has fallen to a record low, below the unusually depressed levels seen prior to the 1998 emerging markets meltdown....The stagnant trading activity means âyou have to aggressively trade the current range and aggressively manage relative value opportunitiesâ between different maturities It sounds like players are having to really leverage up to get any decent returns from trading. The carry trades being put on are flatteners rather than steepeners. So it could get much more bloody for the shorts before it gets better.
The front-end of curve is most vulnerable to short covering. The middle/back-end is tough because with credit spreads this tight, it is difficult to make the case that treasuries are overbought - everything in fixed income is expensive! The selling in bunds to 3yr lows is interesting. Not too much criticism of the ECB being slow to raise rates - so the selling could be tied to future inflation expectations. Maybe a leading indicator for G7 bond markets???
I would like to see an overlay of FCB treasury/agency purchases with bond market volatility. My guess they look like the yen/spx chart right now.
the fed. is still printing dollars with a firehose............. and the rate of change is increasing.... until this rolls over, ...well, you know....
Vega fund made their first apprearance in the CBOT options today in months. They did a June/Sep 105-105.5-106 iron fly in the 5yr options. Bought 30,000 Sep 105-106 strangles for 44 to 46 ticks and sold 20,000 June 105.5 straddles around 25 ticks. With the premium on the strangle side they obviously need a move outside 105 or 106 but not too far. Now that I think about it a bit more it seems to be more of a short gamma long vega options play as there is much more vega in the strangle than the front month straddle that expires next Friday (all gamma). Speaking of the Merrill MOVE index. You know what was a great indicator for reduced market volatility. In the middle of March Countrywide began to look at half strikes in CBOT 10yr options. That is they started looking at say the 107.5 (107-16) 10yr calls instead of the 108 calls. Likewise they did the same with puts. As stupid as it sounds this was a very simple clue that they didn't want to be wasting money on their hedging program with calls/puts that are so far out of the money (and with vol so low) they won't give any upside/downside protection on a significant change in mortgage spreads vs. Treasuries. I'm in the camp that this PIMCO, WAMCO, big domestic fund unwind of long US 10yr vs. short Eurex Bund will continue to push TY back toward 107 while holding the Bund somewhere between 112.50 and 113.00 regardless of where the data prints in either country. Remember, these flows are nothing short of HUGE so they will push the market where it doesn't make sense to go but it won't be a quick move, as that would be asking for way too much these days in Treasuries, should be done in two or three weeks.