The Bond Bulletin by Carley Garner

red army

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September 9th, 2008


Treasuries soar as traders digest the Fannie / Freddie bailout.


While Sunday night looked to be the end of the bond bull market, Tuesday morning suggested that there was still some steam behind the bond rally. In yesterday's newsletter I pointed out that the long bond appeared to be looking toward 123 and I stand by that statement.



Whether or not such prices can be explained with market fundamentals doesn't really matter. As a trader it is important to let the market guide your actions instead of letting your opinions guide them. This can be hard to do, but may be the difference between success and failure.



Following the biggest government bailout ever, many investors and bond traders are asking themselves "why did they have to do that?" Such a dramatic action, seems to be an indication of just how bad things had gotten or could have gotten. As a result, the flight to quality bid has come back to the Treasury market with the long bond leading the way.



Also aiding the Treasury futures rally, pending home sales data disappointed to the downside and hints that Lehman has ceased talks with its potential Korean bank rescuer. Additionally, sharply lower equities paved the way for a move higher.



The market mentality has been that of buying all dips and until this theory falls out of fashion, Treasury futures will make their way higher. With that said, I think that a longer term high is imminent and will looking for better opportunities to play the downside. For now, I am looking for the December 30 year treasury futures to see near 123, the 10 year note may see prices as high as 120'26 (no that is not a typo). The five year note futures could see about 116'08 or so on the upside. I know that it sounds a bit far-fetched, but this is what my charts are telling me. In the meantime, I will be patiently waiting for a bearish opportunity.










Treasury Option Trading Recommendations

**There is unlimited risk in naked option selling.



Flat



Treasury Futures Trading Recommendations

**There is unlimited risk in trading futures.



We recommend being flat, but hope that you were involved in the most recent recommendation made on this newsletter:



September 4 - Clients were advised to sell the 5 year note at 112'23 and to purchase an October 113 call option for about 45 ticks as an insurance policy against a possible rally. This is a synthetic put and has limited risk in the amount of the premium paid for the call and the distance between the futures entry and the strike price, plus commissions and fees of course. The trade involves unlimited profit potential. Call me for additional details.



· September 8 - Those trading with me were advised to take profits on the futures last night on the dip near 111'13.5. The long call was liquidated later in the day for approximately 25. Assuming these fills, the trade would have been profitable by $1,296.87 on the futures and would have lost $312.50 on the long call. This nets $984.37 before commissions and fees (keep in mind that there are two round turns and thus two commissions).







There is substantial risk of loss in trading futures and options.



Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

view on the german bunds...????
 
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