Probability Distributions of EDZ8

July 29th, 2018|Basics, Featured|

[Below is a Trade Thought essay that discusses a real-world application of the options article I wrote for the CME]   This will probably be a multi-part series.  This week, I wanted to discuss the pricing of the front options flies.  Clearly from the FFV8 pricing and lack of movement, the markets just do not think the Fed is going to skip in two months.  We can easily cover the skip scenario by buying FFV8.  We should wait until the August meeting has passed in a few days.  I also don’t think the Fed is going to hike more than once a [...]

Inverted Yield Curve

July 1st, 2018|Featured, Positioning|

Some of the FOMC members have been saying they don’t want to invert the yield curve, but sections of the ED yield curve have already inverted.  For the past few weeks, EDH0-H1 spread through EDZ0-Z1 has been negative.  I think this will be a permanent feature of the yield curve going forward, barring some miraculous appearance of the term/risk premium.  There are a number of reasons for this: The Fed statement. The Fed took out the forward guidance that implied that they would stay accommodative.  In theory, as long as the Fed stays accommodative, the longer end of the curve [...]

A Caveman’s View of Bitcoin

January 28th, 2018|Economy, Featured|

I’m not claiming to be any kind of Bitcoin expert.  I don’t know much… after all, I’ve been trapped in a block of ice all these years[1].  In particular, I have no idea how Bitcoin (or equivalent) can be considered a “currency.” When you have a fixed asset where someone keeps taking a fractional transaction cost, eventually, the users end up with next to nothing and the processors end up with most of the asset. A long time ago, my father and I were sitting around the fire cooking our mammoth meat, and I described to him how poker at [...]

Many Traders have Never Seen…

December 24th, 2017|Economy, Featured|

Have you ever heard that phrase “Many traders have never seen___”?  For example: Many traders have never seen a real vol spike. You’ve probably heard ad nauseum about how short vol (VIX) sellers will get crushed one day. Many traders have never seen a real equity correction. For almost eight years, buying on dips has been a good strategy. Many traders have never seen buying fixed income against the bond (or tens) yield downtrend line in the US not work. There are many old traders who’ve made a career on having the 30+ year downtrend line in the bonds hold. [...]

BONUS: “Free” Straddle

October 1st, 2017|Featured, Positioning|

From time to time, I'll post an occasional trade.  You'll need a reasonable cost structure to take advantage of this opportunity. On Friday I sent out the following trade: I saw EDZ7 98.625 call trade 1.5 and that seemed really cheap.  The premise of the trade is to get a "zero cost" straddle.  In fact, according to my numbers, I think you GET PAID for owning this straddle.  This would be to buy 100 EDZ7 98.625 call vs Sell 12 FFF8. I'll do the full write-up this weekend.  But basically, the EDZ7 call traded 10K times at 1.5.  FFF8 should [...]

Legging Lessons

September 17th, 2017|Basics, Featured|

Since some of you may be new to ED trading, I may occasionally do a “Trade Basics” segment.  There was an interesting trade that went through on Friday, and I thought I would discuss it.  Almost 25K EDU7-EDV7 spreads traded.  This is a crazy amount to have traded, considering the open interest on EDV7 is only 103K contracts.  I’m assuming this is probably some kind of unwind.  There appears to be an equally unusually large volume on this spread trade on August 2, and since EDU7 rolls off Monday, it seems reasonable to conclude that this was an unwind of [...]

ED-FF Spread

May 8th, 2017|Featured, Positioning|

[From time to time, I will post trade-related commentary from the web site.  The EDM7-FF spread collapsed the following week and this trade thought has resulted in one profitable trade and the second order effect of the ED-FF curve steepening has given us a an initial profit on a second trade.] One of the more interesting developments this year has been how the ED-FF spread has collapsed.  Take for example EDM7 vs FF.  It was over 35bps at one point this year, and it settled over 15bps lower on Friday.  I suppose considering we’ve had a yield-grab rally, it makes [...]

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 [...]

Trump’s “Master Plan”?

January 29th, 2017|Economy, Featured|

[From time to time, I'll write an article for Seeking Alpha. Below is the summary of the article that was published on February 2, 2017. To read the full article, go to] Summary • We have seen the past few quarters how much the Trade Balance can affect GDP. • Trump's "puzzling" foreign policy actions are wholly consistent with reducing the Trade Balance with various counterparties. • One of Trump's strengths is negotiating, and he is using some classic negotiation tactics with various countries. I discuss what he is trying to accomplish in the various parts of the world. [...]

CA Global Expansion

January 1st, 2017|Economy, Featured|

I’ve wanted to look at non-USD STIR futures for some time now, but it never looked like another central bank was going to active enough.  We may be on the brink of a series of moves from a central bank other than the Fed, which would give us a curve that could have a tradeable shape.  For now, I want to add the STIR futures from the time zones closest to me – Canadian BA futures, Euribor futures and Short Sterling futures. The primary focus of the CA newsletter will be the US markets, but we should look for attractive [...]