carleygarner
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October 3, 2008
Employment Report and Congress dominated trade.
The Treasury market spent another day plagued with confusion and irrational trade. After a rally of nearly a full handle in the long bond, prices quickly dropped equidistantly into negative territory on the heels of a tolerable jobs report and ahead of the Congressional bail out vote.
Due to interest in Congress, there didn't seem to be quite as much speculation surrounding the jobs report as is typical. Nonetheless, there was an obvious market reaction to the news. According to the government, nonfarm payrolls fell 159,000 last month to prove ADP's estimates to be extremely off the mark. Analysts estimates were a little more optimistic but positive revisions to previous readings leaves the job loss in line with expectations. As mentioned in yesterday's report, we were looking for weakness in bonds on an in-line employment report. However, I was a little surprised to see the promptness and magnitude of the reaction given the day's second potentially earth shattering event, the bail-out vote.
Upon passing of the bail-out bill, there seemed to be widespread "buy the rumor sell the fact" trade. Perhaps Monday will be much more telling as to the overall direction of the market.
I hate to sound like a broken record, but it simply doesn't make sense to try to force a trade in a wildly range-bound market. An argument could be made that a trade should simply be buying the low end of the range and selling the high and in normal market conditions I would agree. However, what we are seeing is anything but normal and the choppy nature of trade leads me to believe that when prices to break out of the range it will be somewhat of a spectacle in which you would likely prefer not to be on the wrong side of. I urge traders to be patient; an opportunity in which the reward seems worth the risk will come along.
Option selling may be a great way to play a breakout of the range. A rally to or near 122 should pose great short call opportunities, likewise a move below 116 may be an attractive place to shop for short puts.
Treasury Option Trading Recommendations
**There is unlimited risk in naked option selling.
Flat
Treasury Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
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.
Employment Report and Congress dominated trade.
The Treasury market spent another day plagued with confusion and irrational trade. After a rally of nearly a full handle in the long bond, prices quickly dropped equidistantly into negative territory on the heels of a tolerable jobs report and ahead of the Congressional bail out vote.
Due to interest in Congress, there didn't seem to be quite as much speculation surrounding the jobs report as is typical. Nonetheless, there was an obvious market reaction to the news. According to the government, nonfarm payrolls fell 159,000 last month to prove ADP's estimates to be extremely off the mark. Analysts estimates were a little more optimistic but positive revisions to previous readings leaves the job loss in line with expectations. As mentioned in yesterday's report, we were looking for weakness in bonds on an in-line employment report. However, I was a little surprised to see the promptness and magnitude of the reaction given the day's second potentially earth shattering event, the bail-out vote.
Upon passing of the bail-out bill, there seemed to be widespread "buy the rumor sell the fact" trade. Perhaps Monday will be much more telling as to the overall direction of the market.
I hate to sound like a broken record, but it simply doesn't make sense to try to force a trade in a wildly range-bound market. An argument could be made that a trade should simply be buying the low end of the range and selling the high and in normal market conditions I would agree. However, what we are seeing is anything but normal and the choppy nature of trade leads me to believe that when prices to break out of the range it will be somewhat of a spectacle in which you would likely prefer not to be on the wrong side of. I urge traders to be patient; an opportunity in which the reward seems worth the risk will come along.
Option selling may be a great way to play a breakout of the range. A rally to or near 122 should pose great short call opportunities, likewise a move below 116 may be an attractive place to shop for short puts.
Treasury Option Trading Recommendations
**There is unlimited risk in naked option selling.
Flat
Treasury Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
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.
