UST's

[gooseman]

So then, good folk of T2W, how the hell do you trade them? I am really stuck as to what do do. I can see an argument for bond yileds to rally through the roof and for yileds to collapse. Do I get myself long wings, or sell a strangle? I am honestly flummoxed.

 

[Martinghoul]

Buy strangles... The FOA for today traded at 18bps implied. That's some vol and it's justified, 'cause we're smack in the eye of the convexity storm.

 

[gooseman]

buy july implied 11%?

 

[Martinghoul]

buy july implied 11%?

Let me put it to you this way... Under no circumstances would I be a seller of TY vol here.

 

[gooseman]

are you bill gross in disguise ;-)

 

[GammaJammer]

Can try and be clever and trade the curve I guess. But I'm sure a ton of people have those trades on already. Maybe look at futures positioning to see where the pain is in the curve, and play for the screw you move?

 

[Martinghoul]

Well, steepeners, specifically 2s10s, is the trade du jour, as evidenced by the massive repo squeeze on the current 10s. I don't wanna be too clever, but here's some ideas for you:
In Sep 10y note sell the 109-114-123 put fly. You can do something similar in Sep bond, also, with the basic idea being that we're just not gonna stay arnd here.

And yes, it's me, Billy Boy...

 

[gooseman]

buy strangle and trade gamma?

 

[GammaJammer]

Well I guess at current levels gotta be careful about just being outright long vol as the decay bill might kill you. Need something where you can be off on the timing and still manage it. But I'm not an options PM so don't quote me for gods sake.

 

[Martinghoul]

You could do that, I suppose... I am sorta allergic to bid-offer though.

 

[gooseman]

gamma makes a good point but if you say being long vega is the sh1t....hmm. bloody hard. put skew is awful

 

[Martinghoul]

Well, listen, if it's too expensive, but you agree that you don't wanna sell it, why don't you just do nothing? Might save yourself some money this way. IMHO, now is not the best time to be a hero.

 

[gooseman]

exactly my thinking mate-not sure, best leave it alone.

 

[arabianights]

naked shorts

What I'd really like is some kind of super quanto thing, essentially a put on USTs where the settlement was physical commodities. Hyper leverage...