December 12th, 2008

Happy Holidays from DeCarley Trading!

Sporadic Treasury trade likely caused casualties.

Friday's trade was guided by inflation data, University of Michigan Sentiment and Retail sales.  However, it was dominated by emotion.  As the long awaited auto-bill fell flat last night; accordingly, trade in Treasuries and equities moved violently throughout the night while most were sleeping.  Despite prices being near unchanged at the close the volatility didn't subside. 

The Producer Price Index was reported at -2.2%, in line with expectations suggesting pricing pressures are easing swiftly.  This is an about face to that of earlier in 2008.  Also boding for lower bond prices, consumer sentiment was reported at 59.1, much better than the expected 55.  On the side of the bulls, retail sales were weak, but the draw of 1.8% wasn't a surprise. 

It is hard to say whether the early morning sell off was due to end of the week position squaring or if the late day rally was.  Monday should paint a clearer, but still muddy picture of what exactly is going on in this market. 

The magnitude of the recent rally has distorted the perspective of onlookers.  For those that aren't familiar with trading Treasury futures, a glance at the chart may lead them to believe that the market has been trading quietly sideways.  However, the range-bound trade has been anything but.  Despite what look like dwarfing price bars, there is a lot of money at stake.  Today's move from high to low in the 30 year bond represents a nearly $4,000 move per futures contract and likely claimed the accounts of many traders. 

We have yet to reach my upside targets in the Treasuries, but the overnight highs weren't terribly far away.  While it was possible that the spike high that I was anticipating has already occurred, it seems as though this market will find a second wind going into next week.  I am a little less confident, but still looking for over 138 in the 30-year bond and nearly 127 in the 10-year note. 

It was a rough week, sorry so short (but sweet).

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today). 

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks. 

·         November 24 - You can get in at a better price, you may want to buy the 113's. 

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

There is substantial risk of loss in trading futures and options.