Conditional Curve Shape

June 4th, 2017|Basics|

I think of value on the curve in two ways: (1) bottom-up, and (2) top-down.  Bottom-up would be looking at a small piece of the curve and thinking about the value there, whether it’s a particular Fed meeting, or slope or curvature on a segment of the curve.  This is probably the most common way to come up with a trade idea.  Top-down would be looking at the overall level of rates and asking what implications makes sense for the shape of the curve. On Friday, ten year yields made new “post-election” lows (starting a few days after the election [...]

Widen Your Trading Horizons

March 13th, 2017|Basics, Featured|

One of my pet peeves about trading is how the general trading population can only think in terms of “up or down.”  As a result, people tend to under-appreciate market commentary that is not related to correctly predicting/forecasting/guessing “up or down.”  I wanted to discuss the various forms of analysis that you can make use of: Correct directional analysis. This is unquestionably useful when correct, but very few people are right significantly more than about 55-60% of the time.  Very few.  If you take a longer time horizon, that number could be higher.  But it would be unrealistic to think [...]

Curve Regimes

February 19th, 2017|Basics|

I finished that article on regime change for a trade magazine, and it has been approved.  It should be published some time in the next few weeks (I’m guessing).  There was one part of it that I thought was particularly interesting that I wanted to highlight because it seemed very relevant to the current market.  The market positioning has been “overly bearish” for some time, and partly as a result, the markets have not been able to sell off for most of this year.  EDZ0 is UP 2bps on the year, despite much-better data and a hawkish FOMC.  That’s got [...]

The Six Pillars of Long Rates

December 12th, 2016|Basics, Featured|

There are Six Pillars of low rates in the long end. You’ve heard me discuss these in the past, but not presented in this way. We have the Big 3 QE central banks (ECB, BOJ and the Fed), plus three other factors (the neutral rate, inflation, and demographics). I thought we should do an inventory of where we stand on these various drivers to gauge the potential long-end selloff: • The ECB’s QE. The ECB was a little late to the QE party. But they had been buying €60B per month since March 2015 (with the exception of this 12 [...]

Fed Meeting Pricing: Quarterly vs Non-Quarterly Meetings

August 22nd, 2016|Basics|

One of the more interesting things from last week was that FFV-X traded up to 2bps.  For most of the year, we said it was highly unlikely for the Fed to hike less than a week before the election, and it has been close to 0.5bps for several months.  However, the “lottery ticket” effect that we have discussed for some time now has appeared in full force.  As the Fed meetings get closer, people feel the need to take a 10+:1 shot, get protection for their books, close out shorts in the spread, etc.  And with the current Fed, people [...]

Jobber’s Paradise

August 15th, 2016|Basics|

[The table of Flip Trades have been omitted, in consideration of subscribers.  However, the main point of the write-up holds:  that you should adjust your trading strategy and ranges, based on the trading environment.  Don't be a one-trick pony.  Just as a good football team can win on offense, defense and sometimes special teams, you should be able to make money in many different environments.]   Last week the Portfolio just surged past the old P&L highs, and is up almost 200BUs since April.  This performance is in stark contrast to the Trade List, which has been languishing.  On the one [...]

So Many Choices!

July 29th, 2016|Basics|

People new to Eurodollar futures may not be aware of the various possibilities in trades that are available. Even people who have traded EDs for a while don’t think about all the possibilities. EDs aren’t like other futures, like gold or orange juice. You can actually do a lot more with them than most people realize.  Below are many of the things you can do with EDs, and let’s say you wanted to take a bearish interest rate view:   Trade Directionally. Sell a single contract (i.e. sell EDZ7). Trade Spread. Buy a calendar spread in the front of the [...]

Nothing Matters

July 15th, 2016|Basics|

When considering a trade, most people just think about how much a trade will make when they are right, and how much they will make when they are wrong. But those should not be the only considerations. There is also the scenario where “nothing” happens. All else being equal, you want to also make money if the market just “sits” there (via carry and/or roll). The longer the time horizon on your trades, the more important the carry and roll become. Think about “nothing” more often - it happens A LOT more than you think. So when you go through [...]

Book Review: The Next Perfect Trade by Alex Gurevich

June 14th, 2016|Basics, Featured|

I’ll give it 5 stars (out of 5). I’ve referred to Alex a few times in the Forums, but not by name.  He is the former colleague who regularly had $100+ million P&Ls.  I did not realize that he wrote a book late last year.  As soon as I found out, I ordered it on Amazon. Let me give you a little background.  Even though we traded on the same desk and we both did many more trades than the average trader, I would say that the overlap was almost non-existent on the types of trades he did and the [...]

Trade Implementation

June 7th, 2016|Basics, Featured|

Traders spend a majority of their time thinking about their view.  Think about ALL the cumulative manpower and brainpower involved in the analysis of markets and most of it focuses on “up” or “down.”  Traders don’t spend nearly as much time thinking about the implementation of that view.  It would be one thing if people were right more than 60% of the time, but it’s typically not if you compare the results to a relevant benchmark. If you are only going to be right 55-60% of the time (at best for the vast majority of traders), then the expression of [...]