Have a couple sticks of exposure in TLT. Basis being the inverted head and shoulders over the last 5ish months. Was working beautifully. Pullbacks are obviously a normal part of the process and in this instrument it’s usually of the .786 variety, deep and convicted, which is right where we are now, also right on the neckline. I typically follow the continuous future for positioning via the etf. Just spouting off here more than anything else. Anyone trading this?
IMO, the ICS spreads are more indicative of future price than the outrights, at least for the long end of the curve. I price the butterfly using the 10s/30s and 30s/ultra spreads. Not sure how to use vol for trades like this though.
You’re saying price out the 10/30? That’s an interesting idea and will do. Fx, rates and commodities typically skew vol on the call side as any move north in those typically is a negative as they are supply side inputs thus skew would land on the long side
No. I price the rate fly, which (the way I chart it -- positive duration) you buy BOB and sell NOB. Looking up the ratios, we have 2:1 for both. Check it out. Then you just watch the cash value of the spread, and compare to the outright bonds/ultras. It's essentially a long ZB position that is short notes and an ultra bond to create a similar duration risk as the long ZB leg. You have duration risk, but your mark-to-market requires quite a bit more size to move. The big guys like it. Less likely to get shaken out, and similar payoffs. Takes a lot more cash to move the entire curve than just the outright bonds or ultras. Can price it like this (compares to UB and ZB, less so ZN). 3000*/ZB - 2000*/ZN - 1000*/UB I also like TMF and UBT in addition to TLT. TMF is my favorite.
The daily candle on this spread engulfed in a positive way the day’s prior, before the ultra did. Seemed like the right time to roll my TLT up and out, either way though, appreciate the fascinating idea.
No. However, I have been looking into it a lot lately and plan to get involved starting 2025, which is coming soon. I've noticed that those traders who are very well rounded in economics and not just trading specific securities seem to love this instrument.
Agree. There is a lot of leverage in fixed income and so to some it is alluring. The 25 delta call option typically offers you 30:1 on debit which is inline with margin from most institutional brokers.