I'll start w/the goal: I'd like to profit if US long term treasury rates rise substantially sometime in the next 10 years. The plan: To buy long-dated (5 to 10 years), well out-of-the-money puts on Treasury futures. Current 10 year rates are about 3.7%. I'd like to buy a put that would be in-the-money should rates rise 300 basis points. I am not an options trader, but have traded stocks and futures for years. As I understand it, options on 10 year Treasuries are only available going out a couple of years at most. Once you go out that far, volumes are slim and prices/spreads are very expensive. Are there trading desks out there that would create such an option over the counter for a retail investor? Is there a way to synthetically create such an option using exchange-traded products? Thanks for any input.
Unless you are talking significant size, I seriously doubt anyone is gonna bother with it. And there's no way to synthetically create a long term option out of short term ones. You best bet is to buy TBT, as mentioned, or keep rolling short term positions.
Thanks for the help. I actually had just bought some TBT this morning for a less speculative account. I want to do the way out-of-the-money puts in order to wildly profit from a "black swan" event. The only option quotes I can even get are for Dec 09. While they offer nice leverage (ZN Dec 09 95 puts cost 1/64th), the time decay would be too great.
Someone may be willing to make a market for a retail customer, but to get any interest you must do SIZE. If you want to buy a huge number, start by asking your broker to send an inquiry to the exchange floor where treasury puts trade. They may be willing to create a FLEX option for you. Mark