Home Forums Main Forum Z TURN

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  • bagua
    Participant
    Post count: 10
    #3369 |

    In respect of the Dec turns even with this slight steepening of the curve in the lastweek off the back of the long end sell off there seems to be the constant theme of Z turn cheapness interestingly the z7 over the last few days has also been responsible for the highest daily turnover and OI.

    based on where we were last year and the not dissimilar situation its seems obvious that these things in the reds are a candidate for a roll up scenario either via spreads naked flys or doubles .
    I suppose the risk is we have another major risk off event and the whites to reds come off but there is still plenty of opportunity to be short that or pay premium somewhere efor it as you say Joseph be long carry long risk ?? is it in your opinion a safer place to hedge up steepen er views via a white or via something further out ie the greens blues will obviously outperform front reds in such a sceanrio.

    even looking at the z6 -2* z7/8 spreads it appears bvious that there is some roll up value there even in the event of another major shift .

  • bagua
    Participant
    Post count: 10

    interestingly at this time last year the Z5/6/7 v 2* 6/7/8 was trading negative with those red hikes being priced so arguably the z/8/9 part of the curve is primed to outperform seeing as though that spread 6/7/8-2* 7/8/ 9has rallied all year from -15

  • Curve Advisor
    Keymaster
    Post count: 612

    I mentioned this previously in another thread, but for quite some time, the Z contracts have had the highest open interest (among surrounding contracts). It’s not clear to me if it’s a massive disagreement on the year-end turn, or if it is some kind of algo. A couple of weeks ago, the 3 mo libor fixing went over year-end, but there was nothing there to suggest the status quo (1bp for the Z6 turn) was wrong.

    I’m not sure what you are asking – I can provide better feedback if you reference a specific trade. I was saying to clients a week or two ago that selling H8 1 yr double fly @ 1 and H8 vs 2xH9 1yr fly @ 3.5 was a good bullish hedge to bearish trades, in case of a crisis. As clients got out of bearish trades, they unwound this hedge, which also happened to make a little (scratch at worst).

    At this point, I advised clients to be flat directional risk, unless they had a strong view. The markets to be are in the “middle” of a range, and I could see us moving in either direction. But if you like steepeners and need a hedge, I like selling the last positive year double fly as a bullish hedge (like the U8 or Z8 1yr double fly).

    As for that Z5 vs 2xZ6 1yr fly trade, the environment back then was completely different. I’m not sure there is any value in looking at that now.

    Let me know if this answered your questions.

  • bagua
    Participant
    Post count: 10

    Well patience is a virtue in ED’s but this trade has taken a month and well and truly collapsed .

    This weeks moves and ranges in the reds are volatile to state the obvious Im expecting the trip back down across the 12 months to be just as rapid to 25 BP.

    how you structure stuff is anyones guess i suppose the later blues ie h20/21 have also pressnted the obvious ranges up and down .

    How do you feel about fading these moves at the red section I h/7/8 area based on the 2/5/10 section of the curve or is it too directional. Whilst looking for cover I suppose its also prudent to tke advantage of the volatility .

    Seeing z/7 h8 blast up 2* its value last week is a once in a year trade … reminiscent of taper moves .. the flush out occurs only to see them back where they were in a heartbeat I know that the relative inflation expectations etc have altered of the back of trump and we are at historically low levels in all these spreads but these moves are looking prime to possibly fade not that there has been much fading un 12 months unless you were ther tuesday// to wed when h7/8 went 19-14.5 then all the way to 30.. paused came back to 24.5 then ramped again crazy stuff.

    Do you look a the relative safety in 2020… onwards as your hedge ??

  • Curve Advisor
    Keymaster
    Post count: 612

    I’m not sure which trade you are talking about that collapsed… in my first reply in this thread, I asked you to let me know the specific trade, but you never did. I hope you didn’t have it in any relevant size.

    The CA Trade List did really well this week (+151 bp-units), because we saw value in front-end steepeners (mostly H7-U7). I mentioned last week that a Trump presidency should be bearish and we should sell into a post-election crisis rally, so I thought the front end would steepen regardless of who was president (I’ll post this soon). I had also suggested buying 0EZ 88 puts vs selling EDZ 91 puts @ -3 just a week ago, as both a bullish and bearish trade. That also did really well. You need to start off with a good view on the markets. I suppose the point of this is that I generally don’t trade the same things all the time – you have to adjust your trades based on where the value is in the markets. Something I like one week, I may have a completely different view the next week if the environment changes, or could be perceived to change. You have to keep on top of the calendar and adjust your positioning and even get out of things, as the conditions dictate.

    I really can’t speak to what you want to hedge, because I don’t know what your positions are.

    When the curve is volatile, this opens a lot of larger profit opportunities. If you are more of a “bigger picture” trader, there will be more opportunities. If you are more of a “scalper”, it is better to stick to the longer end, where ranges are tighter. I’m really not sure what your trading style is. If you like flipping/jobbing, I think staying away from the first 12 contracts is prudent for now because of volatility. There are a few good jobbing opportunities further out the curve that I identified this weekend. There is also a front-end trade, FF trade and options trade that I mentioned I am mulling over. Try to develop modules of value in your trading where you can make money on different things and in different environments.

  • bagua
    Participant
    Post count: 10

    Yes I think the back is the place to be obviously reds have steepened but I suppose Im saying how far can they go..

    The trade I was talking about was z6/7 – 2* 7/8 obviously 7/8 has massively outperfromed and the thing collapsed.

    For know yes Im out the back but the volatility presents opportunities there for sure.

    Cheers

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