Friday, October 29, 2010

QE2 expectations are too big:Long USD

The USD is oversold. Reports are leaking that the Treasury bond broker dealers are telling Helicopter Ben that additional Fed purchases of Treasury debt may not be productive. Thus the Fed may buy mortgage debt or just reduce the size of the purchases. In any case, the markets have overestimated the interest of the Fed to push rates down further.

Sell UUP Jan 2011 $23 put at .93
Buy UUP Jan 2011 $22 put at .35

.58 upside with .42 downside with technical trends in your favor.

Tuesday, October 26, 2010

Technical Top - Time to benefit from hype

After this long bull run, it is time for the market to take a breather. The USD is at a historical support point, fiscal stimulus is peaking. It is enough to take a risk that the SPY (SSO) will not rise another 6% (12%) in the next three months.

The author has entered in the following position.

Sell SSO Jan 2011 $47 Call at $1.22
Buy SSO Jan 2011 $48 Call at $.98

Net credit .24 with $1 risk.

QE2? Be quiet. Long the 30Y bond

End of stimulus spending and heightened expectations of quantitative easing make treasury bond prices ripe for increases. Also housing is resuming price declines, pushing money to risk adverse areas of the market.

Sell Jan 2011 TLT $93 Put for $1.2
Buy Jan 2011 TLT $91 Put for .81

Net credit of .39 with a $2 risk.