March Treasury Bonds are up 10/32 at 120:19 this morning as I write. The chart included shows that T-Bonds are attempting to break out above the last several day consolidation this morning. A close above this consolidation could put the bonds in position to challenge the early October highs in the 123:00 area. The directional movement indicators are basically right on top of each other showing a slight bias to the bull side. The ADX line continues to fall suggesting no strong trending movement. The overall trend is up which is a concern for our current covered put write position. I will be watching this particular position today and may decide to liquidate if prices continue to rally. When a market continues to rally when the theoretical fundamentals are supposedly so bearish, then you have to go with what the chart says. This chart is beginning to say that the bond market wants to rally despite all the talk about how much supply will be coming to market over time to finance the growing national debt. As mentioned last week; there may be a problem attracting foreign investors, but when certain institutions can borrow from the Fed at virtually zero interest and then buy US Treasury securities for 4% yield and higher, it is a no brainer to lock in that spread. That game will end when the Fed begins to raise rates which is not expected any time soon.
Followers should also be long one March Bond (114:00 strike) put from 2 12/64 and short 2 March Bond (110:00 strike) put options from 1 9/64 each for an overall credit of 6/64 or $93.75 gross.
You should also be long one March Bond (108:00 strike) put option from 52/64 and short 2 March Bond (105:00 strike) put options from 29/64 each or an overall credit of 6/64 or $93.75 gross.
And finally, you should be short one March T-bond futures contract from an average cost basis of 118:16 and short one March T-Bond (121:00 strike) put option from 3 24/64.
March options expire in 87 days.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
