Today we have the rate decision from the FOMC at 2:15pm EST. The consensus is that Mr. Bernanke and company will leave interest rates unchanged. The main issue many traders are looking for is a change in verbage towards inflation. With Gas prices at all time highs and Gold closing in on $700, signs of inflation are everywhere. Also the Dollar is near a 30 year low. These factors should cause Mr. Bernanke to try and “jawbone” the Dollar back up which means his statement should be hawkish. If this happens then bonds should begin to trend lower and we are targeting a move back towards 110 by the expiration date of this trade.
Buy a June 30 yr. T-Bond 111 put for approximately 13 points ($203.13) to open a position.
Or profit goal is to catch a move back down to 110 or below. Break even point is 110-25 for the 111 put. 100% profit would be realized at expiration if the market is at 110-18 for the 111 put.
Max risk, before commissions and fees, and assuming the above mentioned fill would be about $200 for the 111 put. The full premium paid for the option is lost at expiration if the market expires above 111.
by Derek Frey
Odom & Frey
Call us at 1-866-636-6378