Yield Curve Trade Recommendation: Short Ten Year Note, Expect Rising Rates (Long Put Volatility / Short Call Volatility)

Expect interest rates to rise


Buy Five Debit Spreads:

Buy: 120 June 2014 Put Option (0’59)

Sell: 118 June 2014 Put Option (0’30)

Purchase spread differential near 0’31 (assume 1 tick transaction cost / slippage on each side of the trade as the closing prices were a spread differential of 0’29)


Sell Five Credit Spreads:

Sell 125 March 2014 Call Option (0’54)

Buy 128.5 March 2014 Call Option (0’03)

Purchase spread differential near 0’49 (assume 1 tick transaction cost / slippage on each side of the trade as the closing prices were a spread differential of 0’29)

This trade puts the investor long volatility in correlation with a rising rate environment. The expectation is that interest rates at the long end of the yield curve will rise faster than the short end of the curve.  There will be another leg of this trade placed in the two year note over the next week. The general thesis of the trade is to expect Bernanke to lay the groundwork for the taper – if not announce the taper itself on Wednesday.  This trade puts the investor long a debit spread in a 6 month time horizon and short a credit spread in the three month time horizon.

This trading system is a new feature of the web site and will coincide with recommendations for various managed futures investments as well.  I operated a hedge fund along the yield curve and the trade and risk management methodology used will be from that system.

DISCLOSURE: These are the opinions of the author and may not have considered all risk factors. Nothing on this web site should be construed as an individual recommendation, talk to your independent advisor. The author and Opalesque may have relationships with those people they cover in the publication. Mr. Melin provides a full disclosure of his business relationships to regulators and certain eligible participants who engage him in consulting projects. Managed futures investing involves risk and there are no guarantees of safety or future performance being implied. Managed futures can be a risky investment. This web site and its content is subject to the terms of the web site. Risk Disclosure and terms of web site are available here: Performance information received on this site is provided by third parties and deemed reliable but there is no guarantee relative to same. Performance reporting sources and quality assurance techniques may include, but are not limited to: disclosure document, CTA self reporting, brokerage firm reporting, consultant reporting, spot checking other reporting databases; nonetheless no guarantee of accuracy or implication performance verification or auditing is being made by the publishers. The CTA Database is a project separately managed from

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