Treasury traders are fickle ahead of the Fed’s interest rate decision due out tomorrow afternoon. It seems as though the light volume and lack of direction will carry into tomorrow morning but we could see fireworks in post-FOMC trade. The rate announcement is scheduled to be made at a quarter after 2pm Eastern, so that leaves a majority of the session without guidance.
The light volatility has sucked some of the premium out of Treasury options but event risk seems to be keeping option pricing afloat. Nonetheless, with the October options going off of the board and a sideways market there looks to be an opportunity to be a strangle buyer. This isn’t necessarily a high probability trade but if volatility explodes, it could be a large percentage gainer. Based on current pricing, it is possible to buy the October note 116 puts and the 118 calls for a combined cost of about 18 ticks or $281 before commissions and fees. Risk is limited to the purchase price and profit potential is theoretically unlimited on either side of the market. It will take a sizable move in one direction to reap the rewards but based on our chart work it seems very possible. We feel that the note will break out o! f its current range with our first support and resistance being found near the strike prices of the mentioned strangle.
On the contrary, if you are a short option trader I recommend being flat. We doubt that the directionless trade will last much beyond the next day or two.
Sorry, but nothing has changed…our overall comments remain the same:
Several sessions of hovering in the mid 119’s creates a difficult environment to choose an immediate direction in December bond futures. Rather than force a prediction, we will remain neutral. 119’10ish is still the pivot in the long bond with intermediate-term resistance at 121 and then again near 122. Support can be found at 118 and again at 117’18. Similarly, resistance in the note lies at 118’06 and support at 116’02.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
September 11- Our clients were recommended to sell the November 128 calls for 18 or better, we are now trying to buy them back for 5 or better to lock in a quick profit of about $200 per contract before commissions and fees.
September 15- Our clients were recommended to change their orders to 6 and were getting filled.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Senior Analyst / Commodity Broker
Local : 702-947-0701
*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.