I currently trade on 100k. I typically like to purchase 100k worth of notes and then trade against them. 1 year notes yield nothing right now. 30 year bonds yield close to 5%. I want to put all of it in 30 bonds but then I have to worry about price risk if I want to exit. Anyone have any inexpensive good ways to hedge the price risk?
1) You could simply "hedge" with other futures, options or ETF's. 2) Instead of owning treasury securities and "trading against" them, you could merely keep your account in cash and use option credit-spreads to generate "interest" that you could earn otherwise. 3) Is it worth it for you to buy treasuries with your account size as it is?
I guess I could purchase a 30 year bond. I would have to margin 9% of my account. I would want to hedge the price risk so I would have to purchase put options on 30 year bonds. Or sell futures on 30 year bonds. When I margin a 30 year bond are there 30 year bond options or futures that will cover me??
I'm just looking for a way to go into a 30 year bond and cover my price risk. I trade through Interactive Brokers. I called them and they told me that if I went into a 30 year bond on margin buying options to hedge is not the same thing??
If you hedge it perfectly you will end up with only the risk-free rate. If you want the 5% yield you have to take the risk of holding the long bond.
Thanks for the feedback...sorry but I'm a little confused on bonds. I can margin 9% of my account and trade against it. Can I also short futures contracts against the bond. I called my broker they told me no...that they were two different products???