March Treasury Bonds are down 10/32 at 119:11 this morning as I write. The included chart shows that T-bonds have a potential double top that has formed overhead in the 123:00 area. The longer term uptrend line from the June lows is still intact. That line comes in around the upper 117:00 area. The directional movement indicators are bearish but the ADX line continues to meander sideways. T-Bond prices are currently trading in the vicinity of several major moving averages, the 5, 40, 90 and 200 day, all of which are moving sideways. This suggests that T-Bonds aren’t acting as if a major move is going to happen right away. I recommend focusing of the fact that there is a double top looming overhead and a rising trend line coming up from below. Now, that range is basically between 118:00 and 123:00. That range will narrow every day as the uptrend line continues to rise. In the next few weeks, that space between the double top and the rising trend line will run out of room. Yesterday, we were successful in buying back the two short March Bond 105:00 puts at 4/64. That resulted in a gross gain of $781.25. The matching put option we bought with that short option was the March 108:00 put that we originally spent $812.50. So, the way that I look at it is that we now own the original 108:00 put for an average cost basis of $31.25. Combine this with the buy back of the March 110:00 puts yesterday, that brought the original cost basis of the March 114:00 put that we own down to $437.50, and we have a strong position in bonds on the bearish side, should T-Bond prices decide to fall sharply between and February 19th, the expiration date.
Followers should be long one March Bond (114:00 strike) put from 2 12/64. (Cost basis of 28/64, or $437.50, if you include the buy back of the two short 110:00 put options on December 8th).
You should also be long one March Bond (108:00 strike) put option from 52/64. (Cost basis of 2/64, or $31.25, if you include the buy back of the two short 105:00 put options on December 8th).
March options expire in 73 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.
This newsletter is not intended for dissemination to the public without prior approval from David Hall.
