May 8th, 2009

If you missed our online option trading class with the New York Institute of Finance (I know most of you had scheduling conflicts), you can view the archive for free by clicking here: http://tinyurl.com/CGrecording

Bonds and Notes stable after yesterday's bloodshed

A poor Treasury auction on Thursday sent intermediate and long-term interest rate products in a tailspin.  The Fed's attempt to fund their bailout efforts became dramatically more expensive than was originally anticipated as the central bank was forced to raise rates considerably to find buyers for their securities. 

What could have been another volatile day in the complex ended up being relatively uneventful.  The U.S. employment report painted a slightly better picture than many were anticipating but because the data wasn't overwhelmingly bearish the market took the opportunity to take a breather from the selling. 

In our last newsletter, dated may 5th, we noted:

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. 

So far our prediction has been relatively accurate (we will ignore the Eurodollar for now); however, we will know whether or not bonds and notes were a buy at such levels next week.  Weekly support in both the 10-year note and the 5-year note has been reached but the long bond hasn't quite reached our intermediate target of just under 119...but it is close enough for us.  With that said, another flush to the mid 118's in the 30-year are possible so all positions should be handled accordingly. 

Our clients were recommended to sell the June T-bond 117 puts yesterday for about 25 ticks following the large slide in prices.  Although things have been a bit rocky, it looks as though we should see enough premium burn on this position in the near-term to buy it back with a decent profit in the coming sessions.

If you missed our online option trading class with the New York Institute of Finance (I know most of you had scheduling conflicts), you can view the archive for free by clicking here: http://tinyurl.com/CGrecording

* 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.