New highs in Treasuries?

Option expiration in Treasuries and equities likely contributed to today’s trade. Although, it is difficult to say whether it capped what could have potentially been a much larger rally in bonds and notes, or it actually held prices stable. Our gut tells us that it is the former.
Gold and silver rallied sharply as flight to quality buyers scrambled to react to a free falling Euro and Middle East protests. Although the traditional relationship suggests that gold and the Euro would move together, new debt realizations triggered safe-haven buying. I guess some have already forgotten that the purchase of metals is speculative and might turn a nice profit, but it is in no way a safety play. Nonetheless, people are creatures of habit.
It was a painfully quiet news day. There weren’t any releases during the session and there won’t be anything of substance to chew on (from a data stand point) until Wednesday of next week. In the meantime, it feels like trade will be dominated by overseas development (specifically the Euro zone debt debacle) and currency trade (although the two are related).
We aren’t putting too much credence into Friday’s trade due to the fact that it is the end of the trading week and option expiration. So we will rely on Thursday’s price action for guidance…accordingly, it seems as though the Treasury correction (although a bit more shallow than we had expected) might quickly have run its course. The odds look to be favoring another run at new highs.
Our target lows of 123’14 and 121’20 weren’t quite met, but were within the vicinity. Therefore, clients of ours were recommended to offset short Bond calls yesterday morning on the large dip to lock in a profit. We hope to have an opportunity to resell them at a better price in the coming week or so. Fills were coming back near 11 ticks. Depending on entry this yielded a profit of anywhere from $280 per contract before transaction costs to about $200.
If we are right about the Treasury rebound, the rally could see 126’09 in the June Bond futures and 123’16 in the June note.
may20bond11may20note* 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 factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.
5-5-2011 – Clients were advised to sell the July 128 calls for 24 ticks or better.
5-19-2011 – Our target lows of 123’14 and 121’20 weren’t quite met, but were within the vicinity. Therefore, clients of ours were recommended to offset short Bond calls yesterday morning on the large dip to lock in a profit. We hope to have an opportunity to resell them at a better price in the coming week or so. Fills were coming back near 11 ticks. Depending on entry this yielded a profit of anywhere from $280 per contract before transaction costs to about $200.
(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
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*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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