May 6th, 2009

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Auction reverses weak trade, but bears control

Treasuries were sluggish this morning following ADP's payroll report prediction.  The payroll firm believes that non-farm job loss will come in under 500k.  This would be a great improvement over last month's data and another sign that the economy may have dodged the depression bullet.  With that said, ADP has yet to establish a reputation of being accurate. 

Sharp short covering on light volume was triggered by a decent 10-year note auction.  Also keeping bond and note bears with a slight edge is the continued equity market stability.

Meanwhile, leaks in regards to the stress test results seemed to keep a larger rally at bay.  The new-found information takes some of the event risk out of tomorrow as there doesn't seem to be any "bombshells". 

We are becoming increasingly bullish but believe that there is a risk of a large spike low across the Treasury complex.   This could put the 30-year bond  and the 10-year note near 120.  The five year note could see 116 but looks to be nearing a buying opportunity in the mid-116's. 

If you didn't take our original Eurodollar recommendation, good for you because you can do so at even better prices.  Risk averse traders may even look to sell the futures near 99.11 and buy an at the money call for a limited risk of about $200 plus commissions.  LIBOR is at an all-time high, it can go higher but it probably shouldn't. 

We are sticking with yesterday's commentary in regards to playing this market to the upside:

We would love to sell puts beneath this market, and maybe go long futures in the 5-year note or synthetics in the 10-year but are patiently waiting for a lighter risk opportunity.  If you want to play the upcoming event risk, we recommend playing it safe.  In a perfect world, we would like to be long the June 5-year near 116 but if you are scared of missing the boat, you may look to purchase the futures near 117 and buy a June 117 put.  This will give you 17 days in the market with limited risk and allow you the ability to peel one leg of the trade off at a time in either favorable or adverse market moves.

If you are interested in learning more about these types of trading strategies, join us on May 7th at 4:30 pm for a free online educational webinar.  Register at www.NYIF.Com .

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

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Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

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Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045

·         If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs

·         Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

*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.