carleygarner
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March 24th, 2010
Treasuries awaken from slumber
Rumors of force liquidations from CTA's and hedge funds, not so bad economic data, a screaming U.S. dollar and a lousy 5-year note auction all combined to trigger a massive sell-off in Treasuries. The day's events seemed to have awakened a sleeping giant.
A few days ago we mentioned a lottery ticket play that involved the purchase of an April 119/117 strangle....I hope that some of you did this. At the time of this writing, the 117 put had traded as high as 1'24!!!
We have also been pushing short option traders to exit any open orders as the risk of an explosion in volatility, and thus option premium, seemed imminent. Treasury puts across the board doubled, tripled or more in value in a matter of a single trading day. We will be shopping around for short put plays in the coming sessions.
Durable goods orders were reported at an increase of .5%, a little worse than expectations but a massive upward revision to prior numbers caused bonds to swoon. In fact, the market moved a little ahead of the announcement...it seems like some new the numbers before others.
The Treasury auctioned $42 billion in 5-year notes at a rate of 2.605% with a bid to cover of 2.55 and only 39.7% of participation was from indirect bidders. In other words, the bonds went off at a higher than expected rate and with less demand than has been seen in recent auctions. The auction wasn't a disaster, but the already shaken market was vulnerable and might continue to be in the coming sessions.
We had a feeling that recent trade was the calm before the storm, but we expected the initial move to be a little higher before reversing. Clearly we were off the mark a bit. Now that the tides have turned, and stocks and bonds are moving in tandem (at least for now) we feel like next downside target in the March long bond will be in the mid-to-low 114's and just over 115 in the note. That said, don't chase the market lower...after Wednesday's trade the market is a bit oversold. Look for a bounce if you want to be a bear.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
Flat
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
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.
Treasuries awaken from slumber
Rumors of force liquidations from CTA's and hedge funds, not so bad economic data, a screaming U.S. dollar and a lousy 5-year note auction all combined to trigger a massive sell-off in Treasuries. The day's events seemed to have awakened a sleeping giant.
A few days ago we mentioned a lottery ticket play that involved the purchase of an April 119/117 strangle....I hope that some of you did this. At the time of this writing, the 117 put had traded as high as 1'24!!!
We have also been pushing short option traders to exit any open orders as the risk of an explosion in volatility, and thus option premium, seemed imminent. Treasury puts across the board doubled, tripled or more in value in a matter of a single trading day. We will be shopping around for short put plays in the coming sessions.
Durable goods orders were reported at an increase of .5%, a little worse than expectations but a massive upward revision to prior numbers caused bonds to swoon. In fact, the market moved a little ahead of the announcement...it seems like some new the numbers before others.
The Treasury auctioned $42 billion in 5-year notes at a rate of 2.605% with a bid to cover of 2.55 and only 39.7% of participation was from indirect bidders. In other words, the bonds went off at a higher than expected rate and with less demand than has been seen in recent auctions. The auction wasn't a disaster, but the already shaken market was vulnerable and might continue to be in the coming sessions.
We had a feeling that recent trade was the calm before the storm, but we expected the initial move to be a little higher before reversing. Clearly we were off the mark a bit. Now that the tides have turned, and stocks and bonds are moving in tandem (at least for now) we feel like next downside target in the March long bond will be in the mid-to-low 114's and just over 115 in the note. That said, don't chase the market lower...after Wednesday's trade the market is a bit oversold. Look for a bounce if you want to be a bear.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
Flat
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
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.
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