SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Mish's Global Economic Trend Analysis
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: gregor_us who wrote (317)2/20/2004 11:10:21 AM
From: mishedlo  Read Replies (2) of 116555
 
Not sure if a book would help.
I bought one and it did not tell me a thing.
I will tell you this, if you do trade futures:
Stay away from the spoos and naz. I am totally hopeless.

The nicest thing about interest rate futures IMO is the implied target.

With a FF rate of 1% eurodollars will trade at about 98.82+-
Call it 98.80 for sake of argument.
100 is an interest rate of 0%
1% is in theory 99.00 but in practice about 98.80
2% is in practice 97.80

Now with that info all one has to do is figure out where we are headed
March eurodollars are at 98.86.
There is no money to be made on March Eurodollars. They are 100% fully priced with a 0% probability of a rate hike by march.
June is 97.75 and there is little risk reward there as well.
Sep 04 is 98.52
Dec 04 is 98.19
Mar 05 is 97.80
Jun 05 is 97.40
Sep 05 is 97.02

Now all one has to do is figure out the probability of rate hikes. Notice how steep this curve gets after DEC. Everyone is positive those rate hikes are coming big time next year. .40 in rate hikes factored in for 3 consecutive quarters. Do you believe that? I do not. Even if they hike .25 per quarter 3 times you still win (provided they do not start now).

That is the key. These things will decay up, if you believe there will not be hikes next year. The longer we go without hikes, the more all these months will drift towards 98.80+-

each .01 is $25
On the Sep 05 future, if there are no hikes it will go from 97.02 to 98.80 (or 172 basis points BPs) 172*25=$4300 per contract.

In a nutshell that is it.
97.02 is roughly a hike of 1.6% or a FF rate of 2.6%
If we hiked 3.2%to 4.2% you would lose $4300 per contract.

If you want to buy a sep 05 future and sell a CC on it you can get 40 BPs for a 97.50. That would allow appreciation of approx 50BP's plus the 40 BPs for the CC limiting your gain to 90 BP's max but also giving you 40 BP's of protection down to 96.60 (your break even point would be more than a full 2% hike) Anything less and you win.

A good strategy might be to buy futures on a dip and sell CC's on a significant bounce.

Mish
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News