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.
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