Treacherous Treasury futures

Sunday, 05 February, 2012

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What are the true costs of trading futures and options? Carley Garner and Karen Gibbs discuss.... http://www.aweber.com/archive/decarleystock/.MPm

Treacherous Treasury futures

Just as Treasury traders focused on the bullish fundamental factors in yesterday's session, today was all about the bearish arguments. Unfortunately, the market is having difficulty coming to a reasonable middle ground. A few days ago, we called for consolidation trade in the Treasury markets and I guess in a roundabout way that is what we are seeing. However, this is the most exciting consolidation I have seen in years! The long bond has been quickly moving between 135ish and 132ish. The markets had picked a direction in overnight trade, but the frenzy was propelled by a better than expected ISM reading. According to the Institute of Supply Management, the August index landed at 56.3 to beat last month's as well as analyst expectations. Many are arguing the size of today's move on such a minimal economic report but I argue that much of the motivation was a delayed reaction to the Fed minutes released yesterday. As we noted in the last newsletter, the market focused on the Fed's willingness to take further policy action but ignored the fact that they didn't believe it would be necessary or that the most recent QE move was done with some contention. We are still patiently waiting for the holiday weekend. In theory, market liquidity (and hopefully calmer heads) will return from the three day Labor Day weekend. We aren't going to pretend we know exactly where the market is going, I doubt that anybody is having too much luck given the market conditions. All we can to is chicken scratch the chart, and give you our best guess.... Obvious support and resistance in the December bond futures will be 135'10 and 131'20, respectively; distant levels will be 136'20 and 127. IF the high 136's are seen, it should be a good place to be a bear. On the flip side, seasonals remain bullish for the next several weeks so it might not be a bad idea to try the long side on a massive sell off into the mid-to-low 128's. The notes are a better market to be trading futures in. We like the idea of being short-term bulls in the mid-123's and bears in the mid 126's.

Better traders than us might look to play the market in between our noted levels, if so look for a possible swing higher tomorrow ahead of the employment numbers on Friday with the first resistance coming in near 125'09 in the 10 year note and 134'05 in the 30-year bond futures.

* 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. Charts provided by Track 'n Trade, Gecko software. **Seasonality is already factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling. 8-10-10 Clients were advised to sell the October 135 calls for 24/27 8-25-10 Clients were advised to roll their short 135 calls into short October 130/139 strangles with a short November 142 call. If volatility declines, the current lopsided strangle should benefit. 8-26-10 Clients were advised to purchase October 5-year note 120 calls and sell futures this afternoon for a total risk of under $600 (before considering transaction costs). This gives traders 30 days in the market with unlimited profit potential, capped risk and the ability to quickly adjust or take profits (futures face much tighter spreads than options).

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures. Flat

Carley Garner

Senior Analyst / Commodity Broker

DeCarley Trading

cgarner@DeCarleyTrading.com

1-866-790-TRADE

Local : 702-947-0701

http://www.DeCarleyTrading.com

http://www.ATradersFirstBookonCommodities.com

*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. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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