Update on Short Ten Year / Taper Trade and New Gold / Currency Trade In Works

This article addresses the yield curve trade that recommended a short position in the Ten Year Note going into the Federal Reserve taper announcement and also tees up a new relative value trade in gold / silver vs a small basket of currencies selected based on their levels of debt.

Yield Curve Trade

In our yield curve trade recommendation, the long debit spread (buy June 2014 120 put, sell 118 Put) has essentially been treading water while the real performer is the short in the money credit spread (sell March 2014 125 call buy 128 call.  Note that the initial quoted prices were inaccurate).

Ultimately my expectation is that the short credit spread, currently in the money, will move out of the money at some point before expiration in March.  When this happens I may recommend a trade to move from an in the money spread to a more out of the money spread, as the first breach of the 120 level could be the point at which buyers find short term support.  The goal with this trade is the value of the options sold goes down in price.  My planning on this trade is that the time premium baked into the options will be rapidly declining in February and March, which is when I anticipate the trade to be most profitable.

With the long debit spread the goal is to see the price of the spread increase in value.  In the out of the money debit spread I anticipate the Ten Year Note market will move in the money (past 120) at some point between now and the option expiration in September. As I said this is a long term trade and my expectation is that this will happen before the 2nd quarter of 2014 ends.  If this doesn’t happen – and my assumptions are incorrect – we may look to exit this trade near the second quarter of 2014.

Long Gold & Silver Recommendation / Short Select Currencies

Another recommendation I’m looking at, and may put within a week, is long gold / long silver and short a basket of currencies where government debt is an issue.  This is a relative value (spread / arbitrage) trade and I might actually overweight the long gold aspect of the trade.

The gold market appears manipulated to me, which is speculation on my part.  More concrete, on a relative value basis the spread between gold and certain currencies has moved past a divergent point and I’m going to look for convergence back to the mean.  Selection of the exact point a relative value trade is overvalued and undervalued is impossible, and thus this trade could experience some downside loss depending on the trade entry point.

Much like the yield curve trade, I’m going to recommend the trade be executed using option spreads.  I find this to be the best risk / reward execution method in my opinion.

Managed Futures Recommendations

In addition to trade recommendations based on my previous hedge fund trading method, this site is going to be making managed futures recommendations.


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

Leave a Reply