Carley Garner
09-15-2008, 03:44 PM
September 15th, 2008
Pre-order my book, "Commodity Options" today! Visit www.DeCarleyTrading.com for details.
Friday may have disheartened the bulls, but Sunday night they had their chance to shine.
Failure of Lehman Brothers to find an operations saving deal over the weekend resulted in the firm filing for bankruptcy and the markets falling into hysteria. At the close of trade on Friday, it looked as though stocks and bonds had both priced in a strong possibility of a Lehman buyout or a Fed bailout. With neither becoming a reality, panic and light volume lead to massive market moves. This was the spike that I had been looking for, now that it is here...uncertainty is setting in.
Adding to the disasters occurring in financial stocks, the day's economic news was bond friendly. The New York Empire manufacturing index was reported to be well into negative territory, industrial production was far weaker than analysts were hoping for and capacity utilization was similarly pessimistic. The news makes it hard to be a bond bear...or does it? Sometimes a flurry of bond bullish news is just what the market needs to lure the last of the buyers in. Once this happens, the bid can dry up and a price reversal often occurs. However, keep in mind that timing is everything and being too bearish too early is a risky proposition.
After an early morning douse of profit taking from the overnight highs, the Treasury market regained momentum going into the close. The strong close and the willingness of buyers to act at such lofty levels tells me that there may be more to come. However, now is the time to begin strategizing and/or entering the market cautiously.
Our clients were recommended to sell five year note futures last night at 114'11, after reaching a high of 114'10.75 and the order going unfilled, we felt it best to get into the market with a protective call. This morning, it was possible to sell the December 5 year note for about 113'29 and buy the October 114 Call for 51 ticks or $796.88. The total risk on this trade at expiration is the difference between the futures price and the long call strike price plus the cost of the 114 call. Thus, this trade has a maximum risk of $890.63 assuming that the trade is held until expiration. I hope to get a relatively quick breakdown in pricing allowing for exit of this trade in the coming days or week. This may seem like a relatively hefty risk for the 5 year note, and I can't say that I disagree. However, the market conditions are extraordinary so trading principles must be adjusted accordingly. Likewise, in this case the profit potential also seems to be worth the risk as I anticipate the possibility of a correction in the 5 year to 112'10. If support at this level fails, we could see prices as low as 111'06. If I am wrong, the 114 call option will be the saving grace.
For those of you working the order recommended below to sell the October 124 call for 20 or better, you would have been filled in overnight trade. Whether you had enough guts to place the order given the circumstances is another story. If you are in, don't panic. I am still comfortable with the trade. The option expires in less than two weeks, and we are giving the market some breathing room. With that said, use a pullback to 118'10 (if we get it) as an exit point.
Treasury Option Trading Recommendations
**There is unlimited risk in naked option selling.
September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.
· September 15 - This order would have been filled in the overnight session, look to buy it back on a correction to 118'10 if we see it....preferably below 7 ticks. Contact me for guidance.
Treasury Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
www.DeCarleyTrading.com
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.
Pre-order my book, "Commodity Options" today! Visit www.DeCarleyTrading.com for details.
Friday may have disheartened the bulls, but Sunday night they had their chance to shine.
Failure of Lehman Brothers to find an operations saving deal over the weekend resulted in the firm filing for bankruptcy and the markets falling into hysteria. At the close of trade on Friday, it looked as though stocks and bonds had both priced in a strong possibility of a Lehman buyout or a Fed bailout. With neither becoming a reality, panic and light volume lead to massive market moves. This was the spike that I had been looking for, now that it is here...uncertainty is setting in.
Adding to the disasters occurring in financial stocks, the day's economic news was bond friendly. The New York Empire manufacturing index was reported to be well into negative territory, industrial production was far weaker than analysts were hoping for and capacity utilization was similarly pessimistic. The news makes it hard to be a bond bear...or does it? Sometimes a flurry of bond bullish news is just what the market needs to lure the last of the buyers in. Once this happens, the bid can dry up and a price reversal often occurs. However, keep in mind that timing is everything and being too bearish too early is a risky proposition.
After an early morning douse of profit taking from the overnight highs, the Treasury market regained momentum going into the close. The strong close and the willingness of buyers to act at such lofty levels tells me that there may be more to come. However, now is the time to begin strategizing and/or entering the market cautiously.
Our clients were recommended to sell five year note futures last night at 114'11, after reaching a high of 114'10.75 and the order going unfilled, we felt it best to get into the market with a protective call. This morning, it was possible to sell the December 5 year note for about 113'29 and buy the October 114 Call for 51 ticks or $796.88. The total risk on this trade at expiration is the difference between the futures price and the long call strike price plus the cost of the 114 call. Thus, this trade has a maximum risk of $890.63 assuming that the trade is held until expiration. I hope to get a relatively quick breakdown in pricing allowing for exit of this trade in the coming days or week. This may seem like a relatively hefty risk for the 5 year note, and I can't say that I disagree. However, the market conditions are extraordinary so trading principles must be adjusted accordingly. Likewise, in this case the profit potential also seems to be worth the risk as I anticipate the possibility of a correction in the 5 year to 112'10. If support at this level fails, we could see prices as low as 111'06. If I am wrong, the 114 call option will be the saving grace.
For those of you working the order recommended below to sell the October 124 call for 20 or better, you would have been filled in overnight trade. Whether you had enough guts to place the order given the circumstances is another story. If you are in, don't panic. I am still comfortable with the trade. The option expires in less than two weeks, and we are giving the market some breathing room. With that said, use a pullback to 118'10 (if we get it) as an exit point.
Treasury Option Trading Recommendations
**There is unlimited risk in naked option selling.
September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.
· September 15 - This order would have been filled in the overnight session, look to buy it back on a correction to 118'10 if we see it....preferably below 7 ticks. Contact me for guidance.
Treasury Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
www.DeCarleyTrading.com
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.