BONDS: Hedging a Crash, Or a Rise in Rates

[drbubb]

BONDS: Hedging a Crash, Or a Rise in Rates

Signs of the Turn in Bonds

TLT Weekly ... All Data : More-Lines : TLT in 2014 : 10-days : TLT : TBT


HIGHLIGHTS

(04/07/2003 : TLT:$86.85 TNX: 4.014% / GLD: =N/A= / SLV: =N/A= / PHM:$13.18 )
(06/30/2003 : TLT:$92.50 TNX: 3.528% / GLD: =N/A= / SLV: =N/A= / PHM:$15.42 )
(06/30/2007 : TLT: $85.17 TNX: 5.033% / GLD:$64.27 / SLV:$12.35 / PHM:$22.45 )
(12/31/2008 : TLT:119.35 TNX: 2.244% / GLD:$86.52 / SLV:$11.20 / PHM:$10.93 )
(06/30/2012 : TLT: 125.20 TNX: 1.659% / GLD:155.19 / SLV:$26.65 / PHM:$10.70 )
(12/31/2013 : TLT:101.86 TNX: 3.016% / GLD:116.12 / SLV:$18.71 / PHM:$20.37 )
(06/30/2014 : TLT:113.52 TNX: 2.516% / GLD:128.04 / SLV:$20.25 / PHM:$20.16 )


TNX (10yr.) Rates ... update // TYX (30yr.)


Here's TLT from late 2013 ... update : TBT : GLD : NUGT :


And TBT - the 2X bear, has launched a Push off the Lows

Day: -TLT--: -Chg- : --Pct-- : --Vol.-- : --TBT--: -Chg- : --Pct.-- : --Vol.-- : Cum'l % : J$60-C : Cum'l % : -NUGT : J$40-C : Cum'l % :
29 : 113.24 : ==================: $61.13 : ===================: $ 60.72 :
30 : 113.52 +0.28 : +0.25% : 5.59M : $60.72 : - 0.39 : - 0.64% : 2.93M : ====== : $ 4.10 : ======= : $46.24 : $13.25 : ======= :
01 : 112.28 - 0.95 : - 0.84% : 8.02M : $61.75 : +1.03 : +1.70% : 2.66M : + 1.70% : $ 4.78 : +16.59% : $45.24 : $12.50 : - 05.66% :
02 : 111.08 - 1.20 : - 1.07% : 8.63M : $63.08 : +1.33 : +2.15% : 3.52M : + 3.89% : $ 5.57 : +35.85% : $46.34 : $13.30 : +03.77% :
03 : 110.68 - 0.40 : - 0.36% : 6.05M : $63.50 : +0.42 : +0.67% : 2.77M : + 4.58% : $ 5.75 : +40.24% : $46.40 : $13.00 : - 01.89% :
. .
11 : 113.58 +0.72 : + 0.64% : 4.59M : $60.30 : - 0.73 : -1.20% : 2.48M : - 00.69% / $ 3.80 : - 07.32% : $50.54 : $16.15 : +21.89% :

== : =====

Playing "Short on Bonds" with Calls on TBT (a 2x Bear etf on Bonds)
=

Bearish on Bonds? Have a look at this instrument:

TBT /
ProShares UltraShort Lehman 20+ Year Treasury (ETF)
... update

=
Here's the TBT Jan.$60-Call ... update : close: $ 4.78 +$0.68 : +16.58%
TBT = UltraShort Leh 20+ Year Treasury : close: $61.75 +$1.03 : + 1.70%



DATABASE

Day: -TLT--: -Chg- : --Pct-- : --Vol.-- : --TBT--: -Chg- : --Pct.-- : --Vol.-- : Cum'l % / J$60-C : Cum'l % : -NUGT : J$40-C : Cum'l % :
29 : 113.24 : ==================: $61.13 : ===================: $ 60.72 - / $4.10 :
30 : 113.52 +0.28 : +0.25% : 5.59M : $60.72 : - 0.39 : - 0.64% : 2.93M : ======= / $ 4.10 : ======= : $46.24 : $13.25 : ======= :
01 : 112.28 - 0.95 : - 0.84% : 8.02M : $61.75 : +1.03 : +1.70% : 2.66M : +01.70% / $ 4.78 : +16.59% : $45.24 : $12.50 : - 05.66% :
02 : 111.08 - 1.20 : - 1.07% : 8.63M : $63.08 : +1.33 : +2.15% : 3.52M : +03.89% / $ 5.57 : +35.85% : $46.34 : $13.30 : +03.77% :
03 : 110.68 - 0.40 : - 0.36% : 6.05M : $63.50 : +0.42 : +0.67% : 2.77M : +04.58% / $ 5.75 : +40.24% : $46.40 : $13.00 : - 01.89% :
07 : 111.59 +0.81 : + 0.73% : 5.93M : $62.57 : - 0.93 : -1.46% : 3.25M : +03.05% / $ 5.05 : +23.17% : $44.23 : $11.75 : -11.32% :
08 : 112.78 +1.25 : + 1.12% : 6.20M : $61.18 : - 1.39 : -2.22% : 3.62M : +00.75% / $ 4.35 : +06.10% : $46.18 : $12.60 : -04.91% :
09 : 112.83 +0.09 : + 0.08% : 6.20M : $61.07 : - 0.11 : -0.18% : 3.15M : +00.58% / $ 4.35 : +06.10% : $49.71 : $15.40 : +16.23% :
10 : 112.86 +0.03 : + 0.03% : 7.17M : $61.03 : - 0.04 : -0.07% : 4.06M : +00.51% / $ 4.22 : +02.93% : $46.98 : $14.00 : +05.66% :
11 : 113.58 +0.72 : + 0.64% : 4.59M : $60.30 : - 0.73 : -1.20% : 2.48M : - 00.69% / $ 3.80 : - 07.32% : $50.54 : $16.15 : +21.89% :
14 : 113.09 - 0.49 : - 0.43% : 4.74M : $60.80 : +0.50 : +0.82% : 2.70M : - 00.13% / $ 3.90 : - 04.87% : $46.59 : $13.20 : -00.38% :
15 : 112.86 - 0.23 : - 0.20% : 7.72M : $60.98 : +0.18 : +0.29% : 3.08M : - 00.43% / $ 4.00 : - 02.44% : $42.57 : $10.60 : -20.00% :
16 : 113.46 +0.60 : +0.53% : 4.33M : $60.34 : - 0.64 : - 1.05% : 2.03M : - 00.63% / $ 3.68 : - 10.24% : $44.73 : $11.60 : -12.45% :
17 : 114.89 +1.43 : +1.26% : 10.7M : $58.85 : - 1.49 : - 2.47% : 7.33M : - 03.73% / $ 3.13 : - 23.67% : $48.42 : $13.90 : +04.91% :
18 : 114.59 - 0.37 : - 3.22% : 6.78M : $59.21 : +0.36 : +0.61% : 3.46M : - 02.49% / $ 3.20 : - 21.95% : $47.81 : $14.00 : +05.74% :
21 : 115.09 +0.57 : +4.97% : 5.73M : $58.64 : - 0.57 : - 0.96% : 3.84M : - 03.43% / $ 2.85 : - 30.49% : $47.76 : $14.00 : +05.74% :
22 : 115.33 +0.24 : +0.21% : 5.52M : $58.40 : - 0.24 : - 0.41% : 2.56M : - 03.82% / $ 2.75 : - 32.93% : $46.30 : $13.10 : -01.13% :

23 : 115.18 - 0.15 : - 0.13% : 3.49M : $58.55 : +0.15 : +0.26% : 3.13M : - 03.43% / $ 2.82 : - 31.22% : $45.72 : $12.70 : -04.15% :
24 : 114.32 - 0.86 : - 0.75% : 6.52M : $59.39 : +0.84 : +1.43% : 2.46M : - 02.05% / $ 3.17 : - 22.68% : $43.55 : $10.70 : -19.25% :
25 : 115.67 +1.35 : +1.18% : 6.87M : $58.06 : - 1.33 : - 2.24% : 3.13M : - 04.24% / $ 2.67 : - 34.88% : $47.16 : $12.50 : -05.66% :

28 : 115.51 - 0.16 : - 0.14% : 5.13M : $58.22 : +0.16 : +0.28% : 3.42M : - 04.76% / $ 2.72 : - 33.66% : $48.01 : $13.85 : +04.53%

29 : 115.93 +0.42 : +0.36% : 6.42M : $57.77 : - 0.45 : - 0.77% : 4.29M : - 04.86% / $ 2.52 : - 38.54% : $46.93 : $13.35 : +00.75%

30 : 114.32 - 1.62 : - 1.40% : 12.3M : $59.34 : +1.63 : +2.82% : 6.68M : - 02.27% / $ 3.25 : - 20.73% : $45.43 : $12.30 : - 07.17%

31 : 113.98 - 0.34 : - 0.30% : 18.3M : $59.63 : +0.29 : +0.49% : 6.87M : - 01.80% / $ 3.45 : - 15.85% : $42.70 : $09.80 : - 26.04%

AUG

01 : 114.56 +0.88 : +0.77% : 15.0M : $58.73 : - 0.90 : - 1.51% : 4.66M : - 03.28% / $ 3.05 : - 25.61% : $43.81 : $10.30 : - 22.26%

04 : 114.26 - 0.30 : - 0.26% : 5.18M : $59.05 : +0.32 : +0.54% : 3.87M : - 02.78% / $ 3.10 : - 24.39% : $42.63 : $09.60 : - 27.55%

05 : 114.63 +0.37 : +0.32% : 8.04M : $58.72 : - 0.33 : - 0.56% : 3.43M : - 03.29% / $ 2.95 : - 28.05% : $43.32 : $10.00 : - 24.53%

06 : 114.70 +0.70 : +0.61% : 7.10M : $58.62 : - 0.10 : - 0.17% : 3.84M : - 03.46% / $ 2.92 : - 28.78% : $46.26 : $12.40 : - 06.42% :

07 : 115.77 +1.07 : +0.93% : 8.95M : $57.55 : - 1.07 : - 1.83% : 3.82M : - 05.22% / $ 2.54 : - 38.05% : $46.56 : $12.80 : - 03.40% :

08 : 115.52 - 0.25 : - 0.22% : 9.35M : $57.72 : +0.17 : +0.30% : 4.15M : - 04.94% / $ 2.62 : - 36.10% : $46.66 : $13.05 : - 01.51% :

11 : 115.51 - 0.01 : - 0.01% : 5.88M : $57.73 : +0.01 : +0.02% : 2.62M : - 04.92% / $ 2.57 : - 37.32% : $47.67 : $12.90 : - 02.64% :

12 : 114.76 - 0.75: - 0.65% : 8.13M : $58.49 : +0.76 : +1.32% : 2.62M : - 03.67% / $ 2.82 : - 31.22% : $50.05 : $15.20 : + 14.72% :
13 : 115.51 +0.75: +0.65% : 7.99M : $57.76 : - 0.73 : - 1.25% : 2.12M : - 04.87% / $ 2.55 : - 37.80% : $50.05 : $15.30 : + 15.47% :

14 : 116.44 +0.93: +0.81% : 9.02M : $56.82 : - 0.94 : - 1.63% : 4.83M : - 06.42% / $ 2.13 : - 48.05% : $48.58 : $14.20 : + 07.17% :

Day: -TLT--: -Chg- : --Pct-- : --Vol.-- : --TBT--: -Chg- : --Pct.-- : --Vol.-- : Cum'l % / J$60-C : -Cum'l % : -NUGT- : J$40-C : Cum'l % :

====================================================== : vs. $60.72 / $4.10 : ---------------------- : $13.25 :

===

[drbubb]

Jim Turk interviews billionaire Eric Sprott :

 

When they stop buying bonds, the game is over

=

=

 

"If they can't raise $3 Billion... How are they going to raise a Trillion."

"It's a Sovereign problem now."

"I have the majority of my clients money, and my own money, in precious metals."

[drbubb]

TBT Calls (Jan.$60-C) : up from $4.10 to $5.57 (that's + 35.9%!)

 

TBT = "ProShares UltraShort Lehman 20+ Year Treasury (ETF)" - closed Wed. at $63.08 - so is 55% in-the-money

 

I have been tracking the price, but I have not bought any yet - perhaps I have been slow in pulling the trigger.

 

Still, it is possible that the Turn may not have occurred yet.

I am now watching to see if the TLT support near $111 holds ... update

 

TLT : Lehman 20+ Year Treasury (ETF)

 

=====

Why buy TBT Calls ?? (which gain value if TLT drops)

 

A drop in Bonds, if/when we see it could be associated with huge destruction in the financial markets:

Bonds, Stocks, and the USD could all fall at the same time...

 

... If there is a widespread flight from Dollar Assets (as many are predicting)

 

It is rare for the three (Bonds, Stocks, and the USD) to fall at the same time.

Howevre, This may one of those times we see that sort of widespread destruction.

If so, this derivative - a Call on a 2X Bear instrument on Bond, could prove to be a valuable hedge.

So it is worthwhile to become familiar with the instrument.

[drbubb]

TLT - $115 looks possible ... update

 

[drbubb]

Bond market crash? Pffffft | Money | theguardian.com

 

(But when you look at the article, it tells you HOW TO BUY BONDS, not how to benefit from their Crash!):

. . .

There's a reason to own long-term bonds. For one thing, a lot of big companies and insurers have to own long-term bonds as a way to protect themselves against risks far in the future. If the big boys have to own those long-term corporate bonds, and can't afford to lose money on them, it's probably a good place for you to seek temporary shelter.

Junk bonds are not as complicated as they sound. They're just bonds from companies who have low credit ratings, in the same way that subprime mortgages were housing loans to consumers with bad credit scores. In practice, however, companies have done a much better job at managing their finances than individuals, so although those businesses may still have more debt on their books, the rate at which they actually default is at very low levels right now.

Junk Bonds

Right now, these are perhaps less junky than at most times in the market’s history, and while that means that they’re also pricier, there have been about a dozen short-lived sell-offs in the bonds, lasting three to eight weeks, that have given bargain hunters great opportunities.

. . .

A couple of other pieces of advice: look for an intermediate- or long-duration fund whose managers have the flexibility to invest in all kinds of fixed income securities, from asset-backed investments to corporate bonds, going wherever they spot the best opportunities. To avoid: anything that sounds more aggressive (eg that involves taking currency bets or that uses leverage).

Here's something the pessimists forget: when the real crash comes, there's nowhere to hide. Make your money while you can.

==

> http://www.theguardian.com/money/us-money-blog/2014/mar/21/bond-market-crash-pffffft

[drbubb]

CALLING WOLF (on Bonds) ?

There have been many, many calls for a Crash in the Bond Market - here are just a few...

 

• The Coming Bond Market Crash - Money Morning

  Jul 1, 2011 - Investors who prepare for the coming bond market crash have the chance to profit in a major way. In fact, there are three moves investors can ...

   

  Peter Schiff: Market-Crushing Treasury Collapse To Hit ...

  by agustino fontevecchia / Forbes- Mar 27, 2012 - Schiff blames intervened bond markets, where rates are artificially and excessively low, and expects the coming crisis to blow the 2008-9 ...

   

  How to Play the Coming Bond Market Crash :: The Market Oracle ...

  Aug 13, 2013 - How to Play the Coming Bond Market Crash :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.

   

  Dr. Martin Weiss: Shocking Forecast of U.S. Bond Market ...

  Oct 20, 2013 - Dr. Martin Weiss: Shocking Forecast of U.S. Bond Market Collapse ... In addition, reduced bond purchases means less revenue coming into the ...

   

  When Will the Bond Market Collapse? - US Economy

  useconomy.about.com/b/2014/01/31/will-the-bond-market-collapse.htm

  by Kimberly Amadeo - Jan 31, 2014 - As for the "crash" in the bond market, it started to happen, then disappeared. ... As consumers see their home prices rise, and jobscoming back, ...

  ==== ====

   

  HIGHLIGHTS of the above:

   

  (06/30/2011: TLT:$94.10 TNX: 3.158% / GLD:146.01 / SLV:$33.84 / PHM:$07.66 )

  (06/30/2012 : TLT:125.20 TNX: 1.659% / GLD:155.19 / SLV:$26.65 / PHM:$10.70 )

  (12/31/2013 : TLT:101.86 TNX: 3.016% / GLD:116.12 / SLV:$18.71 / PHM:$20.37 )

  (06/30/2014 : TLT:113.52 TNX: 2.516% / GLD:128.04 / SLV:$20.25 / PHM:$20.16 )

   

  QE2 ended yesterday (Thursday, June 30, 2011), meaning the Fed will no longer be a big buyer of Treasury bonds.

  So starting today (Friday), the U.S. Treasury needs to sell twice as many Treasury bonds to end investors as it had been.

  The problem is, who's going to buy them?

  Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.

  Not Japan, which is trying to rebound from its March 11 earthquake, tsunami and nuclear disaster - and is focusing all its spending on reconstruction.

  And - as we've seen -neither is the Bernanke-led Fed.

  . . .

  Challenging for Treasury bonds; prices will remain weak no matter how vigorously Bernanke attempts to support them.

  So what should you do with this knowledge? I have three recommendations.

  First and foremost, if Bernanke were not around, I would expect gold prices to fall following a bond market crash. But since he's still at the helm at the Fed, I expect him to do "QE3" in the event of a crash. And that means gold - not Treasury bonds - would become an investor "safe haven." You can expect gold prices to zoom up, peaking at a much higher level around the time Bernanke is finally replaced. Silver will also follow this trend. So make sure you have substantial holdings of either physical gold and silver or the exchange-traded funds (ETFs) SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV).

  Second, if you want to profit more directly from the collapse in Treasury bond prices, you could buy a "put" option on Treasury bond futures (TLT) on the Chicago Board Options Exchange (CBOE). The futures were recently trading around 94, and the January 2013 80 put (CBOE: TLT1319M80-E) was priced around $4.50, which seems an attractive combination of low price and high leverage.

  Finally, if you don't already own a house, you should buy one - and do so with a fixed-rate mortgage...

  . . .

  “The more you delay it, the bigger it will be,” Schiff tells Forbes in a phone interview Tuesday, “so we need to raise interest rates during the recession to confront the inefficiencies.” Schiff, who runs Euro Pacific Capital and is seen by many as permanently bearish, argues that government-intervened bond markets are leading to massive distortions in capital allocation that have only been exacerbated as the Fed reacted to the last couple of recessions. Following the Austrian economic tradition, Schiff believes that only a massive correction, via a deflationary recession, can set the system straight. “In a deflation, real wages will rise because the cost of goods will fall faster,” he says, adding that the government should accompany the correction by lowering taxes and cutting back on regulation.

  . . .

  Do you really want to own a low-paying asset that the federal government is temporarily pricing high? I didn’t think so. That’s why you should minimize or eliminate your exposure to long-term bonds. Those are the ones that will be hurt the most when interest rates rise. But don’t abandon the bond market altogether. You should still own high-yield bonds and inflation-adjusted Treasuries. And with your high-grade bonds, tweak your portfolio by moving into shorter-term maturities... Investors who are shifting to money-market accounts that pay essentially nothing to avoid the looming bear market in bonds are making a mistake. If the rise in rates is slow and steady – a good bet since inflation is low with commodity prices soft and wages stagnant – or a long time in coming, you will make out better in short-term bonds.

  . . .

  The dollar’s drop in value last week might be only the beginning. A highly respected financial expert, Dr. Martin Weiss, has just released a shocking forecast that the U.S. bond market is about to collapse. He says global bond investors are about to rise in rebellion and dump their U.S. bond holdings. If that happens the dollar value would drop even further, bond prices would drop, interest rates would increase sharply, and the economy would be in big trouble... As Dr. Weiss pointed out, Congress has already notified the whole world that the debt-ceiling drama will be returning in the next few months. Global investors don’t have to wait to see what will happen because the dates are already published for everyone to see. Therefore, it is likely that many investors will go ahead and take actions now to protect their portfolios by pulling their money out of U.S. bonds. The return of the debt-ceiling drama already makes it far more risky to invest in bonds, even in short maturation bonds. Therefore the impact on the bond market could begin right away... As Dr. Weiss pointed out, Congress has already notified the whole world that the debt-ceiling drama will be returning in the next few months. Global investors don’t have to wait to see what will happen because the dates are already published for everyone to see. Therefore, it is likely that many investors will go ahead and take actions now to protect their portfolios by pulling their money out of U.S. bonds. The return of the debt-ceiling drama already makes it far more risky to invest in bonds, even in short maturation bonds. Therefore the impact on the bond market could begin right away.

  . . .

  As for the "crash" in the bond market, it started to happen, then disappeared. The yield on the 10-year Treasury rose to 2.9%, sending mortgage interest rates to 4%. With the emerging market crisis, yields dropped back down to 2.65%. However, once this crisis resolve, yields will again start rising.

[drbubb]

THREE Prices : TNX-10 yr-Rates vs. SPY vs. XLF ... update // TNX : SPY : XLF

 

[drbubb]

Review of Michael Pento's Book, "The Coming Bond Market Collapse"

=

=

[Member100]

I've already been burned too many times trying to catch a Big Down move in Bonds

[drbubb]

A fair point, OneHundred

 

To be honest, doing the research for today has put me off this Trade to some extent.

Too many people have called the Top too often, to give me confidence that I can get it right.

 

Maybe a leveraged trade - shorting stocks will have greater potential.

Volatilities on Stock options are near Historic Lows, and stocks now look expensive.

 

Here's SPX : S&P-500 : update // with MA's: SPX'93 : SPY'01 : INDU'87 : RUT'87 : IWM'01

 

 

INDU - On Log scale - A Classic Megaphone ! ... INDU-Log : SPX-93-L : INDU-97L

 

INDU-1997L : INDU-2008

 

Megaphone Top Chart Pattern

Implication | Description | Trading Considerations | Criteria that Supports | Underlying Behavior

Implication

A Megaphone Top also known as a Broadening Top is considered a bearish signal, indicating that the current uptrend may reverse to form a new downtrend.

top

Description

A Megaphone Top is a relatively rare formation and is also known as a Broadening Top. Its shape is opposite to that of a Symmetrical Triangle. The pattern develops after a strong advance in a stock price and can last several weeks or even a few months.

A Megaphone Top is formed because the stock makes a series of higher highs and lower lows. The Megaphone Top usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low.

Volume in the Megaphone Top usually peaks along with prices. It is usual to see trading volumes increase or remain high during the formation of this pattern. The eventual breakout and reversal can be difficult to identify at the time of its occurrence because volume does not appear unusual.

==

> MORE: http://www.trending123.com/patterns/reverse_symmetrical_triangle.html

[drbubb]

Day: -TLT--: -Chg- : --Pct-- : --Vol.-- : --TBT--: -Chg- : --Pct.-- : --Vol.-- : Cum'l % : J$60-C : Cum'l % : -NUGT : J$40-C : Cum'l % :

08 : 112.78 + 1.25 : + 1.12% : 6.20M : $61.18 : - 1.39 : -2.22% : 3.62M : + 0.75% : $ 4.35 : +06.10% : $46.18 : $12.60 : -04.91% :

09 : 112.83 + 0.09 : + 0.08% : 6.20M : $61.07 : - 0.11 : -0.18% : 3.15M : + 0.58% : $ 4.35 : +06.10% : $49.71 : $15.40 : +16.23% :

10 : 112.86 + 0.03 : + 0.03% : 7.17M : $61.03 : - 0.04 : -0.07% : 4.06M : + 0.51% : $ 4.22 : +02.93% : $46.98 : $14.00 : +05.66% :

==========

Note: TLT Hit a high of $113.66 on Thursday;

and TBT, a Low of $60.18 (not far from the Low for the year of 59.54), the TBT Call hit $3.90.

[drbubb]

/ HK MORTGAGE Loan Hedging example /

 

"HIBOR based mortgages can be fixed for up to 12 months.

While the incremental cost is less than that in the example, it is still a meaningful cost for an uncertain short term benefit."

"If I currently pay 1% on HKD10 MM my annual interest bill is HKD100,000" - T.I.

 

 

As I have said, I would not use a HIBOR hedge. It is far too expensive.

(As a former banker, I know that banks rarely give their clients fair deals on fixed rate hedges.)

 

TBT - is a 2X Bear Instrument on US -> which closed at $61.07 vs. TLT-$112.86 and a 10yr-rate of 2.532%

 

If you take HK$100,000 to buy a Hedge, that's about USD $13,000.

 

You could invest, 50% of this, as follows: (or maybe 11 contracts each)

 

TBT Calls- : $Price : HK$50K/$6,500: 11 cts each

Jan15-$60 : $4.22 : : 15.4 contracts : $ 4,642

Jan16-$60 : $7.63 : : 8.52 contracts : $ 8,393 = $13,035 x7.75= HK$101,021

===============

 

The question then is how much of a move in rates is needed to cover your cost.

Beyond that, the hedge has a positive payoff.

 

Taking the Jan. 2015 Call, a move to $64.22 is not at all hard to imagine.

TBT last touched at $65 in early May 2014 - when TLT was $110.4, and TNX was 2.65%

Here are the ranges of the last 12 months:

Sym.: Last--- : 12 months range

TBT : $61.03 : $59.54 - $82.80

TLT : 112.86 : 101.17 - 115.19

TNX : 2.532% : 2.402%- 3.036% (10 yr. Note)

TYX : 3.362% : 3.267% - 3.976% (30 yr. Bond)

 

If TBT moves above 64.22 in the next 6 months, you are "ahead" on your Jan. 2015 hedge:

 

TBT since 8/2011 vs. TNX, TYX ... update / 3yrs: TBT : TLT : TNX : TYX

 

IMO, this sort of hedge is much more cost efficient than something on HIBOR,

and there's an excellent chance you will "win" on the basis risk you take here.

 

To over-simplify what the chart shows:

+ A move to maybe 2.68% on TNX will allow you to breakeven on the Jan.2015 Call

+ A move to maybe 2.80% on TNX will allow you to breakeven on the Jan.2016 Call

(note: these estimates are approximate, not perfect)

Hedging now, you are benefiting from:

Low TNX/TYX interest rates, and Low implied Vols. on TBT Calls.*

You can also exit the Hedge when it suits you, you do not need permission from the bank.

===

*Estimate of ATM TBT calls: TBT closed at $61.03 : Jan.exp: 196d= 0.537-Yr: SQRT: 0.757

Jan 2015: $60c: $4.22 / $61c: $3.65-3.80 = $3.72 /0.757= $4.91/61= 8.05%/.4 = 20.14%

Jun 2015: $60c: $5.90 / $61c: $5.40-5.65 = $5.53 /0.979= $5.65/61= 9.26%/.4 = 23.15%

Jan 2016: $60c: $7.63 / $61E $7.63-.2*1.8=$7.27 /1.240= $5.86/61= 9.61%/.4 = 24.03%

[drbubb]

TBT has a heavy (slight "hidden") cost of Divs. on the short position.

 

TBT loses almost 0.5-1% a month, relative to its "expected" price,

when compared with TLT -

 

TBT LOSS of Hedge Efficiency - Starting From Dec. 2012

=================

End : -TLT- : -TBT- : -TNX- : -TYX- / TLT-chg. : change x2 : Exp. TBT : act/Exp : Discount

(2011)

Aug. : 107.03 : 101.8e: 2.218 : 3.592 / -11.68%: -23.35% : 78.27 : 130.1 % : +30.06% /16=+1.88%

Dec. : 121.25 : 72.28e: 1.871 : 2.889 / +00.06%: +00.12% : 63.37 : 114.1 % : +14.06% /12=+1.17%

(2012)

Jun. : 125.20 : 63.36e: 1.659 : 2.763 / +03.32%: +06.64% : 59.50 : 106.5 % : +06.50% /06=+1.08%

Dec. : 121.18 : 63.45 : 1.756 : 2.952 > +00.00%: +00.00% : 63.45 : 100.0 % : + 00.00% : (( START ))

====

(2013)

Mar. : 117.76 : 65.71 : 1.852 : 3.104 / - 02.82%: - 05.64% : 67.03 : 98.03% : - 01.97% /03= -0.66%

Jun. : 110.44 : 72.43 : 2.478 : 3.498 / - 08.86%: - 17.72% : 74.69 : 96.97% : - 03.03% /06= -0.51%

Dec. : 101.86 : 79.20 : 3.026 : 3.964 / - 15.94%: - 31.89% : 83.68 : 94.65% : - 05.35% /12= -0.45%

Ja14: 108.28 : 69.93 : 2.668 : 3.622 / - 10.65%: - 21.29% : 76.96 : 90.90% : - 09.10% /13= -0.69%

Mar. : 109.10 : 67.55 : 2.723 : 3.561 / - 09.97%: - 19.94% : 76.10 : 88.76% : - 11.24% /15= -0.75%

Jun. : 113.52 : 60.72 : 2.516 : 3.338 / - 06.32%: - 12.64% : 71.47 : 84.96% : - 15.04% /18= -0.84%

===========

// Compare Option Prices // :

*Estimate of ATM TBT calls: TBT closed at $61.03 : Jan.exp: 196d= 0.537-Yr: SQRT: 0.757

Jan 2015: $60c: $4.22 / $61c: $3.65-3.80 = $3.72 /0.757= $4.91/61= 8.05%/.4 = 20.14%

Jun 2015: $60c: $5.90 / $61c: $5.40-5.65 = $5.53 /0.979= $5.65/61= 9.26%/.4 = 23.15%

Jan 2016: $60c: $7.63 / $61E $7.63-.2*1.8=$7.27 /1.240= $5.86/61= 9.61%/.4 = 24.03%

===

*Estimate of ATM TBT puts: TBT closed at $61.03 : Jan.exp: 196d= 0.537-Yr: SQRT: 0.757

Jan 2015: $60p: $3.48 / $61p: $3.90-4.10 = $4.00 /0.757= $5.28/61= 8.66%/.4 = 21.66%

Jun 2015: $60p: $5.33 / $61p: $5.65-6.10 = $5.87 /0.979= $6.00/61= 9.83%/.4 = 24.57%

Jan 2016: $60p: $7.30 / $61E $7.30-.2*3.0=$7.90 /1.240= $6.37/61=10.44%/.4 = 26.11%

===

*Estimate of ATM TLT puts: TLT closed at $112.86 : Jan.exp: 196d= 0.537-Yr: SQRT: 0.757

Jan2015: 115p: $6.05/ $113p: $6.05-.4*3.0 = $4.85 /0.757= $6.41/113= 5.67%/.4 = 14.17%

Jan2016: 115p: $11.8/ $113p: 10.15-10.55 = 10.35 /1.240= $8.35/113= 7.39%/.4 = 18.47%

==

*Estimate of ATM TLT calls: TLT closed at $112.86 : Jan.exp: 196d= 0.537-Yr: SQRT: 0.757

Jan2015: 115c: $2.05/ $113c: $2.05+.6*2.2 = $3.37 /0.757= $4.45/113= 3.94%/.4 = 09.85%

Jan2016: 115c: $4.03/ $113c: $4.65-$4.95 = $4.80 /1.240= $3.87/113= 3.43%/.4 = 08.56%

==

STRUCTURE: (mos: 6+9+18= 33)

=== > -Spot- : Jan.'14 : chg.Pct / Mar.'15 : chg.Pct/ Jan.'15 : chg.Pct = Tot.Pct /Mos= Pmo : x12mo

TLT : 112.86 : 111.00 : -1.64% / 110.50 : -2.09% / 108.00 : -4.31% = -8.04 % / 33 = 0.24 : -2.92%

TBT : $61.00 : $60.50 : -0.82% / $60.50 : -0.82% / $60.50 : -0.82% = -2.46 % / 33 = .075 : -0.89%

Some Comments:

+ TLT-$113 : Div-$3.50= 3.10% yield + 0.26% = TYX: 3.36%

+ TLT curve is less downwards sloping than I expected

+ 1 yr.:$110 : Div-$3.50= 3.18% yield + 0.32% = TYX: 3.50%

+ 2 yr.:$106 : Div-$3.50= 3.30% yield + 0.36% = TYX: 3.66%

+ TBT puts look "cheap" / are TBT calls then overpriced?

[drbubb]

TLT RATE Look-up Table

TLT= " 20+ Year Treasury Bond ETF"

==> div. 3.50*

TLT : ---------- // TYX : 30yrs -: TNX : 10yrs--

130 : 2.69 %--> 2.89%

125 : ---------- // 2.76 (06/12) : 1.66 (06/12)

121 : ---------- // 2.95 (12/12) : 1.76 (12/12)

120 : 2.92 %--> 3.12%

118 : ---------- // 3.10 (03/13) : 1.85 (03/13)

115 : 3.04 %--> 3.30%

114 : ---------- // 3.34 (06/14) : 2.52 (06/14)

113 : 3.10 %--> 3.40%

110 : ---------- // 3.50 (06/13) : 2.50 (06/13)

109 : ---------- // 3.56 (03/14) : 2.72 (03/14)

108 : ---------- // 3.62 (01/14) : 2.67 (01/14)

107 : ---------- // 3.59 (08/11) : 2.22 (08/11)

105 : 3.33 %--> 3.83%

102 : ---------- // 3.96 (02/13) : 3.03 (12/13)

100 : 3.50 %--> 4.00%

$90 : 3.89 %--> 4.40%

$80 : 4.38 %--> 4.90%

=====

Take: TYX, and subtract 20-50 b.p. for costs?

[drbubb]

CURVE Comparisons :

 

Time: TLT : %-chg : TBTe : IntPd+adj: TBTa / 3.5Dv : TYX

Spot : 113 :-0.00% :$ 61.0 :-0.0 - 0.0 : $61.0 / 3.10% :

06m : 111 :-1.75% :$ 62.1 :-1.9 - 0.0 : $60.2 :

12m : 110 :-2.65% :$ 64.2 :-3.8 - 0.0 : $60.4 :

18m : 108 :-4.42% :$ 66.4 :-5.7 - 0.0 : $60.7 :

24m : 106 :-6.19% :$ 68.6 :-7.6 - 0.0 : $61.0 :

=====================

 

The Interest payments on TLT (on being SHORT) are $3.50 per Bond (ie 3.10%)

 

This is DOUBLED to about 6% per annum slippage, because of the 2X SHORT

[drbubb]

BONDS / TLT hit my target yesterday...

 

TLT - $115 looks possible ... update

 

 

Yesterday's close was getting very close to $115, and touched it ($115.05) during the day.

 

Day: -TLT--: -Chg- : --Pct-- : --Vol.-- : --TBT--: -Chg- :

29 : 113.24 : ==================: $61.13 : ======

30 : 113.52 +0.28 : +0.25% : 5.59M : $60.72 : - 0.39 :

15 : 112.86 - 0.23 : - 0.20% : 7.72M : $60.98 : +0.18 :

16 : 113.46 +0.60 : +0.53% : 4.33M : $60.34 : - 0.64 :

17 : 114.89 +1.43 : +1.26% : 10.7M : $58.85 : - 1.49 :

==============

I am not buying Calls on TBT (yet)

[drbubb]

The Latest Charts

TBT Jan. $60-calls ... update
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=TBTA17154600000&uf=0&type=128&size=3&sid=11360958&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=8&rand=376756600&compidx=aaaaa%3A0&ma=4&maval=21,%2076,%20144,%208&lf=268435456&lf2=0&lf3=0&height=510&width=720&mocktick=1


NUGT Jan.$40-calls ... update
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=NUGTA17154400000&uf=0&type=2&size=3&sid=13143613&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=8&rand=2004476757&compidx=aaaaa%3a0&ma=4&maval=21,%2076,%20144,%208&lf=268435456&lf2=0&lf3=0&height=510&width=720&mocktick=1

[drbubb]

RAW price data

Day: -TLT--: -Chg- : --Pct-- : --Vol.-- : --TBT--: -Chg- : --Pct.-- : --Vol.-- : Cum'l % / J$60-C : Cum'l % : -NUGT : J$40-C : Cum'l % : Ds>J.15
Jun
29 : 113.24 : ==================: $61.13 : ===================: $ 60.72 - / $4.10 :
30 : 113.52 +0.28 : +0.25% : 5.59M : $60.72 : - 0.39 : - 0.64% : 2.93M : ======= / $ 4.10 : ======= : $46.24 : $13.25 : ======= : 200
Jul
24 : 114.32 - 0.86 : - 0.75% : 6.52M : $59.39 : +0.84 : +1.43% : 2.46M : - 02.05% / $ 3.17 : - 22.68% : $43.55 : $10.70 : -19.25% : 176
25 : 115.67 +1.35 : +1.18% : 6.87M : $58.06 : - 1.33 : - 2.24% : 3.13M : - 04.24% / $ 2.67 : - 34.88% : $47.16 : $12.50 : -05.66% : 175

[drbubb]

The Slide in TBT could be bottoming out near TBT-$58 ... update

 

 

Last time, the Rally came quickly, and with no warning

[drbubb]

That Low yesterday may have been important

 

TBT Call : Jan$60c ... update

 

 

TBT traded as low as $57.80, and closed at: $58.22, up +0.16

The Jan.$60c traded at as low as $2.33 and closed at $2.75 on 68 cts. volume

[drbubb]

TLT / Bonds update ... update-2014 : TLT-All-data

 

TLT - all Data ... all-data

 

==

Day: -TLT--: -Chg- : --Pct- : --Vol.- : --TBT-: -Chg- : --Pct.- : --Vol.- : Cum'l. % / J$60-C : J$56-C : Cum'l. % : -NUGT : J$40-C : Cum'l. % :
29: 113.24 : =================: $61.13 : ================= :$ 60.72 - / $4.10 : $ 6.30e:

Jun

30: 113.52 +0.28: +0.25%: 5.59M/ $60.72 - 0.39 : - 0.64% : 2.93M/ ======= / $ 4.10 : $ 6.30e: ======= : $46.24 : $13.25 : ======= :

Jul

31: 113.98 - 0.34: - 0.30%: 18.3M/ $59.63 +0.29 : +0.49% : 6.87M/ - 01.80% / $ 3.45 : $ 5.80e: - 15.85% : $42.70 : $09.80 : - 26.04%

AUG

01: 114.56 +0.88: +0.77%: 15.0M/ $58.73 - 0.90 : - 1.51% : 4.66M/ - 03.28% / $ 3.05 : $ 5.20e: - 25.61% : $43.81 : $10.30 : - 22.26%

13: 115.51 +0.75: +0.65%: 7.99M/ $57.76 - 0.73 : - 1.25% : 2.12M/ - 04.87% / $ 2.55 : $ 4.40 : - 37.80% : $50.05 : $15.30 : + 15.47% :

14: 116.44 +0.93: +0.81%: 9.02M/ $56.82 - 0.94 : - 1.63% : 4.83M/ - 06.42% / $ 2.13 : $ 3.75 : - 48.05% : $48.58 : $14.20 : + 07.17% :

15: 117.71 +1.27: +1.09%: 16.1M/ $55.60 - 1.22 : - 2.15% : 9.59M/ - 0X.XX% / $ 1.79 : $ 3.20 : - 00.00% : $46.94 : $12.20 : - 00.00% :

18: 116.54 - 1.17: - 1.00%: 7.60M/ $56.67 +1.07 : +1.92% : 3.91M/ - 0X.XX% / $ 2.10 : $ 3.65 : - 00.00% : $47.75 : $13.00 : - 00.00% :

19: 116.18 - 0.36: - 0.31%: 5.94M/ $56.99 +0.32 : +0.56% : 2.69M/ - 0X.XX% / $ 2.15 : $ 3.80 : - 00.00% : $46.25 : $11.70 : - 00.00% :

20: 115.99 - 0.19: - 0.16%: 7.28M/ $57.24 +0.25 : +0.43% : 2.61M/ - 0X.XX% / $ 2.25 : $ 4.00 : - 00.00% : $46.05 : $11.50 : - 00.00% :

21: 116.64 +0.65: +0.56%: 6.72M/ $56.54 - 0.70 : - 1.22% : 2.79M/ - 06.88% / $ 1.90 : $ 3.45 : - 53.66% : $43.04 : $09.45 : - 00.00% :

22: 117.29 +0.65: +0.55%: 10.1M/ $55.87 - 0.67 : - 1.19% : 4.67M/ - 07.99% / $ 1.68 : $ 3.10 : - 59.03% : $43.03 : $09.50 : - 00.00% :

25: 117.73 +0.44: +0.38%: 5.67M/ $55.47 - 0.40 : - 0.72% : 3.26M/ - 08.65% / $ 1.51 : $ 2.85 : - 63.17% : $40.85 : $08.40 : - 00.00% :

26: 117.35 - 0.38: - 0.00%: 5.49M/ $55.85 +0.38 : +0.00% : 2.74M/ - 00.00% / $ 1.60 : $ 3.00 : - 00.00% : $43.38 : $09.50 : - 00.00% :

27: 118.35 +1.00: +0.85%: 7.07M/ $54.91 - 0.94 : - 1.68% : 3.76M/ - 00.00% / $ 1.30 : $ 2.54 : - 00.00% : $42.96 : $09.30 : - 00.00% :

==

Day: -TLT--: -Chg- : --Pct- : --Vol.- : --TBT-: -Chg- : --Pct.- : --Vol.- : Cum'l. % / J$60-C : J$56-C : Cum'l. % : -NUGT : J$40-C : Cum'l. % :

========

[drbubb]

Could be Time to Buy a few Calls on TBT today (or soon) ?

- if TBT-Jan.$60 Calls hit $2.00-2.10

 

TBT ... update

 

Jan.$60 Calls ... update

 

CALLS
TBT cls. : $56.82
Jan$60 : $2.08-2.17 : $2.13
Jan$58 : $2.82-2.89 : $2.86
Jan$57 : $3.25-3.35 : $3.30
$56.82 : ---- ATM --- : $3.39 : 5.97% sqrt(151)/sqrt(365) : 12.29/19.10 : 0.643 : 9.28%/.4: 23.21% impl.vol.
Jan$56 : $3.70-3.80 : $3.75

Jan.$56 Calls ... update

[drbubb]

 

PM FUND MANAGER: “30-YR TREASURY MARKET IS STARTING TO PRICE IN ECONOMIC ARMEGEDDON”

Low inflation would not explain the 80 basis point drop in long bond yields since January 1st.

“Flight to safety” would flow either into the very short end of the yield curve or into gold or under the mattress.

With retail sales, auto sales, and home sales all collapsing, the only explanation left is that the Treasury bond market is pricing in a severe economic downturn. This would explain also why high yield bond spreads have widened considerably over the past month. The big drop in oil prices this week would further affirm this.

The Treasury bond market is starting to price in economic Armegeddon.

more -

http://www.silverdoctors.com/pm-fund-manager-30-yr-treasury-market-is-starting-to-price-in-economic-armegeddon/#more-46048

 

 

I bought CALLS on TBT today - that's a way to go Short on Bonds - expecting a rate rise.

Today looks like an extreme to me.

 

I bought TBT. Jan.$56 Calls at $3.05

[drbubb]

Time to short the bond market or the stock market?

1:04 p.m. Today - The Trading Deck

The answer to that question will likely help us understand whether or not it is a good time to short the long-term U.S. Treasury bond. My perception is that the stock market is where fast money usually goes, and the bond market is where more prudent investments are made. If that's true I would lean toward the bond market as being right as we witness the divergence between the stock market and the bond market, but there's something else at play.
...this may not be the time to short the long-term U.S. Treasury bond, but if the markets remain under all time highs it may be an exceptional time to short those stocks with excessive valuation in the U.S. stock market instead.

 

(haha. "Prudent investments"? let's see about that!)

 

(2)

Gundlach: 10-year yield could go to 2.2%

1:34 p.m. Today - Seeking Alpha

• Unless he's talking about hitting 2.2% today, it's not such an outlandish prediction given the big rally in Treasury prices of late. On the session, the 10-year yield is lower by a full seven basis points to 2.33%.
• As for 2%, Gundlach - speaking on a CNBC interview - doesn't think we'll get there, but momentum is a hard thing to judge, and there's plenty pushing yields lower right now.

Reality: on the day's Low, rates touched: 2.305% on Friday

 

TNX- Close: 2.345% - .055 : -2.29% / H: 2.398 L: 2.305%
TLT - Close : 117.71 +1.27 : +1.09% / H:118.36 L:116.69 Vol. 16.61mn
TBT - Close : $55.60 - 1.22 : - 2.15% / H: 56.56 L: 54.93 Vol. 9.59mn

 

TBT / 2XBear on Bonds ... update / Close: $55.60 - 1.22

[drbubb]

I'm out !

Sold the TBT Jan$56 calls at $3.90, having bought at $3.05,

- for a + 27.9% profit,

- in three trading days.

 

TBT Chart ... 10-day-update

 

Why?

The volume was massive on the low, and in most markets when you see that, it will get retested.

So I took the profit, and put it into AGQ (2x Silver) calls.

It was not my intention to sell so quickly, but when I saw the (likely) resistance in TBT looming nearby,a

and saw how cheap Silver had become yesterday (SLV-$18.67), I could not resist a switch

 

If TBT retests the low, I may buy again

 

TLT / Bonds, might move higher to the target shown ... update