Despite articles on popular business news websites regarding new interest in Treasury Credit Default Swaps (traders buying insurance against Treasury default).; the markets have voted, and it appears there is little fear of default. Those buying CDO’s are venturing into illiquid markets to buy lottery tickets or insurance that will likely never pay off. Nonetheless, investors continue to buy Treasuries of all maturities without thinking twice (well, ok….they are probably thinking twice but are acting before the third thought has time to materializes).
There is also chatter about an inevitable ratings agency downgrade of Treasuries; I’m not convinced it is a sure thing, but I am convinced there is at least a 50/50 chance. With this said, I highly doubt the result of a downgrade from AAA to AA would trigger a significant outflow of funds from Treasuries…after all, where will they put it? If they are worried about the government defaulting, why would they think bank deposits, or sovereign debt would be any better?
Up until today, economic news has been overall bullish Treasuries (despite the lack of direction). Today’s news, on the other hand, was overall optimistic toward the economy and, therefore, bearish for Treasuries. Pending home sales increased by 2.4% and initial claims for jobless benefits dropped to 398,000 (let’s not get excited this is still an overall weak number).
In other news, the Treasury issued $29 billion in 7-year notes at a draw of 2.28%. The bid to cover is 2.63 and an indirect bidder take of 23.4%. All in all, this was a mediocre showing, but in light of the current environment I give it an A+.
We are finding it very difficult to move on with our lives (and trading) until the circus in Washington finally closes the tent doors. Accordingly, we will maintain our overall bullish stance in the short-term but caution that any such positions should be light and hedged. There just aren’t any high probability trading opportunities for position traders here.
With that in mind, if we get the post-debt ceiling rally we think might be in the cards, the bears might want to consider entering in the mid to high 128’s in the 30-year bond and a little above 126 in the notes (we know, you’ve heard this before…but with the market trading sideways for weeks, not much has changed).
* 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.
Flat
In other markets….
July 11 – Clients were recommended to sell the August Euro 132 puts for about 28 ticks in premium, or $350.
July 12 – Clients were recommended to sell the August Yen 129.50 call for about 28 ticks ($350).
July 12 – Clients were recommended to sell the August Gold 1610 call for about $500 but some fills came back much higher (in excess of 8.00) following late day spike.
July 18 – Clients were advised to sell the August gold 1540 calls for about $5.00 in premium.
July 19 – Clients were recommended to lock in a profit on the Short Euro calls, fills were coming in at 10 and 11. Assuming entry at 28 and exit at 10, profit before commission was $225 per contract.
July 19 – Clients were advised to buy back the 1540 calls (which were an “add-on” to our original bearish stance) near 3.30 to lock in a quick profit.
July 19 – Clients were recommended to buy back any 1610 August gold calls and then sell an August 1630 call and a September 1700 call to replace them. This was being done at a credit of $100 per contract.
July 20 – Clients were advised to buy back the August 1630 call at a quick profit of about $300 before commissions and fees on Wednesday morning.
July 27 – Clients were advised to add on to the short Yen call position by Selling a September 136 call for about 35.
(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
1-866-790-TRADE
Local : 702-947-0701
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http://www.DeCarleyTrading.com
http://www.ATradersFirstBookonCommodities.com
*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.
