Short Bonds via TLT

So I finally decided to pull the trigger. I have been intrigued with this position ever since Tom Sosnoff got me thinking about it at the Traders Expo this last week. As it is almost imposible to know when the Fed is going to start rising rates, I can say with a high level of confidence that I don't think rates are going to go much lower. The federal funds rate is already at near zero and all of the other rates need to have a spread on top of this rate in order to make any money. So in my opinion there really is no room for rates to go any lower. You can argue that the 20 year rate is around 4% and could go lower and in the hight of the financial crisis did go as low as 2.86% (currently around 4%). But operating on the thesis that the markets will not go into complete meltdown (forcing rates lower and this TLT ETF higher) between now and July '10 expiration I think that my trade makes sense. I sold 2 Jul '10 99/101 call spreads for a $0.44 credit. This leaves my risk at $1.56 per spread. But the 99 call has a 33% chance of expiring in the money which leaves me with a 70% probability of success. I like those odds. But lets take a look at the chart and look at some technical levels that would tell me I am wrong.

As you can see in the chart below, $100 is a clear level of resistance and if this level is breached I would except that I am wrong on this trade. Otherwise this is a starter position that I am willing to add to on an trades closer in the 98-100 range between no and July expiration.

Comments

WOW! I think that sums it up

Many of you have been reading this blog may have noticed that my blogging frequency has increased over the past few weeks as I got short the market. As you can imagine I am down money since getting short the market, this is the time when most people pull away from posting. But my goal is to stay active and involved and show you that trading is not always rainbows and butterflies. It is times like these that the things I have been sharing over the past couple of weeks are so important. You need to trade small relative to your account. I have a decent short position in the market and my portfolios are set up to make some awesome returns if we finally turn lower. But something I would like to point out is that my account is 70% Cash. I learned a long time ago how important it is to live by the rules you preach. Because of my discipline I am able to continue to hold my positions, I have time and capital on my side. I can't stress enough how important it is not to get to big....

Stay Small, Stay Out of Trouble

To expand on my post from yesterday about patience. I want to talk about a very important element that allows patience in a position, and that is staying small. If you trade too big RELATIVE to your personal account size, you are likely to be forced to exit the trade before the trade works in your favor. Many trades myself included have all experienced the pains of trading a position way too large given our account size. There is this predisposition out there that the only way you are going to make money in the financial markets is if you are trading 10 lots of options and 1000 shares of stock at the time. This is not the case, and if this is your mentality you will likely ensure yourself trouble. We have all read the stories of traders blowing up their account. I personally think a good rule of thumb is to not risk more than 5% of your account value on any one position. Good Luck Trading! In The Money Trades And 1 favor that we ask: If you like the hard work w...

more good news from FXStreet : Tom Fitzpatrick, senior technical analyst at Citibank in New York. Monday, July 15, 2002 "Parity is a psychological, not a technical level...and whether we pause around parity or not, we are likely to see significant further dollar losses...Our initial target is $1.03 to $1.0450. If that level is taken out, it actually casts a question mark against the whole of the dollar's rally of the last seven years, and could open up a full-blown bear market for the dollar." Julian Jessop, chief European economist at Standard Chartered Bank. Monday, July 15, 2002 "The dollar is under pressure from everything from economic problems to asset reallocation away from the U.S. and corporate accounting problems. It's difficult to see any positive factor for the dollar at the moment. The root of the problem is the U.S. current account deficit. If the U.S. doesn't have to attract an enormous amount of foreign capital, people wouldn't have to wor...

Forex Is Crazy

Search This Blog