December 23rd, 2008

Happy Holidays from DeCarley Trading!

Liquidity absent as traders look forward to Holiday.

Despite a handful of widely followed economic reports, traders weren’t willing to participate in the thinly traded markets.  While some of the liquidity may come back on the Monday following Christmas, we likely won’t see a significant amount of increased interest until the new year. 

In the news, the final third quarter GDP was reported in line with expectations at -.5%.  However, it seemed to be the home sales data that sparked minor mid-day buying in Treasuries.  New Home Sales were slightly lower than estimates along with existing home sales.  Turmoil in housing isn’t new news, but it reminds traders that without a recovery in real estate the economy will struggle to gain footing.

The recently quiet Treasury market shouldn’t be taken for granted.  It seems as though the possibility of another spike in volatility and drop in yields may be in the cards for the long bond.  While fundamentals, in my opinion, aren’t enough to support current pricing, technical momentum is.  Additionally, the light volume paves the way for “just about anything” to happen.  We are looking for another move to the highs in the March T-Bond, and possibly even 143’16.  Once this occurs, the market may be set up for the reversal that we have all be waiting for. 

The 10-year note on the other hand doesn’t seem to have as much potential on the upside.  We see a rally to retest the highs near 129, but at this time our models aren’t projecting higher levels. 

Sorry so brief.  I hope that you are enjoying the holidays and being with friends and family as much as I am. 

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

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). 

·         These are both well underwater, but we haven't given up on the long-term prospects.  We recommend holding on for now. 

·         You may have taken our advice to roll into the March 136 calls for even money.  This lowers the delta and the margin, hopefully improving the odds of riding this out. 

·         If you aren't willing to rid this out to 138, you should be out of this trade.  The risks are high, taking deep pockets to ride this one out. 

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.

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21.  The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!

*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.