The document discusses various strategies for hedging and exiting positions in packs (bundles of futures contracts) using outright futures contracts. It provides examples of hedging a long pack position by selling one, two, three, or four outright contracts. It also discusses strategies for exiting the position by trading calendars spreads between different expiration dates. The strategies allow traders to manage risk and exit pack positions in a structured way using liquid outright and spread products.
This short course introduces novice traders to spread trading strategies on the US Treasury futures market. . Answers to questions relating to the yield curve, fixed income markets, and economic macro-fundamentals are offered.
This short course introduces novice traders to spread trading strategies on the US Treasury futures market. . Answers to questions relating to the yield curve, fixed income markets, and economic macro-fundamentals are offered.
http://www.options-trading-education.com/24091/interest-rate-options/
Interest Rate Options
In interest rate options trading traders are positioning themselves for a faster than previously expected rise in interest rates. As reported in Bloomberg, a faster rate rise is expected as evidenced by a change of the put to call ratio on interest rates from 1.9 to 3.2.
Options Wager
Investors in put options are betting that market participants will raise their expectations for the level of the federal funds rate in 2017. They are wagering that Fed policy makers meeting this week will forecast a higher rate at the end of 2017 than most investors now predict.
As of Sept. 10, there were 3.2 active put options for every active call option, according to data from CME Group Inc. That’s up from a ratio of 1.9 on the final day of the FOMC’s July 29-30 gathering.
Using short-term options on the contract allows traders to place a bet on a policy surprise from the Fed at a relatively low cost and limits the damage in case the trade doesn’t work out, because holders of the options can only lose as much as they paid for them.
The Federal Reserve is phasing out its quantitative easing stimulus program. The $85 billion a month purchase of bonds has been reduced and the general consensus is that it will be done by the next month. Federal Reserve officials have stated that they will keep interest rates low as long as it takes for the economic recovery to be secure. But, as employment figures rise speculation is that the Fed will push rates up soon rather than later. Interest rates options are a practical way to profit from such a move.
Interest Rate Options
An Interest rate option is a specific financial derivative contract. Its value is based is based on interest rates such as the yield on 10 year treasury notes. Just like with equity options one can purchase calls or puts. Traders purchases calls if they believe that rates will go up and puts if they believe that rates will fall. A useful reference is the CME Group Options Open Interest Rate Tool. Rate curves displayed include the following:
Eurodollar
1 Year Mid Curve
2 Year Mid Curve
3 Year Mid Curve
4 Year Mid Curve
5 Year Mid Curve
2 Year Note
5 Year Note
T bond
Ultra
As will all options trading it is smart to focus on one aspect of the market with which you are familiar in trading interest rate options.
Profitable Interest Rate Trading
There are many profitable options strategies that can be applied to interest rate options trading as well as trading other kinds of options. Basically interest rate options trading has to do with forecasting what the Federal Reserve will do with rates and other basic economic factors that tend to drive rates up and down. Short term interest rate options trading has to do with reading market sentiment using technical analysis tools in order to profit from the inefficiency inherent in all markets.
This short course introduces traders to trading strategies and methods used in the Master in Trading Course at Online Finance Academy. Learn how we integrate probability analysis, order flow, market profile, volume analysis, chart patterns and macro-fundamentals into a comprehensive trading strategy.
Scalping futures is a technique which can provide a steady revenue stream to talented traders. This course explains the basics of the techniques involved in short term trading of index futures and what is involved in becoming a successful day trader.
http://www.options-trading-education.com/24091/interest-rate-options/
Interest Rate Options
In interest rate options trading traders are positioning themselves for a faster than previously expected rise in interest rates. As reported in Bloomberg, a faster rate rise is expected as evidenced by a change of the put to call ratio on interest rates from 1.9 to 3.2.
Options Wager
Investors in put options are betting that market participants will raise their expectations for the level of the federal funds rate in 2017. They are wagering that Fed policy makers meeting this week will forecast a higher rate at the end of 2017 than most investors now predict.
As of Sept. 10, there were 3.2 active put options for every active call option, according to data from CME Group Inc. That’s up from a ratio of 1.9 on the final day of the FOMC’s July 29-30 gathering.
Using short-term options on the contract allows traders to place a bet on a policy surprise from the Fed at a relatively low cost and limits the damage in case the trade doesn’t work out, because holders of the options can only lose as much as they paid for them.
The Federal Reserve is phasing out its quantitative easing stimulus program. The $85 billion a month purchase of bonds has been reduced and the general consensus is that it will be done by the next month. Federal Reserve officials have stated that they will keep interest rates low as long as it takes for the economic recovery to be secure. But, as employment figures rise speculation is that the Fed will push rates up soon rather than later. Interest rates options are a practical way to profit from such a move.
Interest Rate Options
An Interest rate option is a specific financial derivative contract. Its value is based is based on interest rates such as the yield on 10 year treasury notes. Just like with equity options one can purchase calls or puts. Traders purchases calls if they believe that rates will go up and puts if they believe that rates will fall. A useful reference is the CME Group Options Open Interest Rate Tool. Rate curves displayed include the following:
Eurodollar
1 Year Mid Curve
2 Year Mid Curve
3 Year Mid Curve
4 Year Mid Curve
5 Year Mid Curve
2 Year Note
5 Year Note
T bond
Ultra
As will all options trading it is smart to focus on one aspect of the market with which you are familiar in trading interest rate options.
Profitable Interest Rate Trading
There are many profitable options strategies that can be applied to interest rate options trading as well as trading other kinds of options. Basically interest rate options trading has to do with forecasting what the Federal Reserve will do with rates and other basic economic factors that tend to drive rates up and down. Short term interest rate options trading has to do with reading market sentiment using technical analysis tools in order to profit from the inefficiency inherent in all markets.
This short course introduces traders to trading strategies and methods used in the Master in Trading Course at Online Finance Academy. Learn how we integrate probability analysis, order flow, market profile, volume analysis, chart patterns and macro-fundamentals into a comprehensive trading strategy.
Scalping futures is a technique which can provide a steady revenue stream to talented traders. This course explains the basics of the techniques involved in short term trading of index futures and what is involved in becoming a successful day trader.
2. PACK VERSUS OUTRIGHT
The excel snapshot is how to
hedge a pack (long) with an ED1 ED2 ED3 ED4
outright (4 * short leg2) and how
to hedge to flat the position. you LEG1 LEG2 LEG3 LEG4
can use this method to either exit
from a pack, or you can price the TRADE 1 1 1 1 1
whole package together as a unit.
Either way it’s a bonefied method TRADE 2 -4
to make good money. I will send
each example, as each outright TRADE 3 -1 2 -1
creates different strategies. So if TRADE 4 1 -1
you buy the pack (whatever pack)
and you sell the second outright.
you are flat outright exposure. To
exit the remaining position, you
need to sell 1 unit of the
ed1/ed2/ed3 butterfly (on jbus
and liquid) and buy 1 unit of the
ed2/ed4 6mth calendar (on jbus
and liquid)
NET 0 0 0 0
3. PACK versus Outright
Opposite you have ED1 ED2 ED3 ED4
the pack (long) LEG1 LEG2 LEG3 LEG4
versus 1 st TRADE 1 1 1 1 1
(outright) short. To TRADE 2 -4
TRADE 3 1 -1
exit you buy 1 TRADE 4 1 -1
ed1/ed4, buy 1 TRADE 5 1 -1
ed1/ed3 and buy 1
ed1/ed2. again all
liquid products
quoted on JBUS.
NET 0 0 0 0
4. PACK versus Outright
Opposite you have ED1 ED2 ED3 ED4
pack (long) versus LEG1 LEG2 LEG3 LEG4
3rd outright (short). TRADE 1 1 1 1 1
To exit you trade TRADE 2 -4
TRADE 3 -1 2 -1
the following. Sell TRADE 4 -1 1
1 ed2/ed3/ed4 TRADE 5
butterfly. And sell
1 ed1/ed3. all
these are liquid.
NET 0 0 0 0
5. PACK versus OUTRIGHT
Opposite is the ED1 ED2 ED3 ED4
pack (long) versus LEG1 LEG2 LEG3 LEG4
4th Outright (short). TRADE 1 1 1 1 1
To exit this TRADE 2 -4
strategy you TRADE 3 -1 1
simply sell 1 TRADE 4 -1 1
ed1/ed4, sell 1
TRADE 5 -1 1
ed2/ed4 and sell 1
ed3/ed4.
These are all very
liquid spreads.
NET 0 0 0 0
6. Bundle versus Pack
As you can see you can hedge a bundle/pack
quite simply through the 12 month calendars. In
the example below you buy 2 yr bundle and sell
2nd pack (red). To exit you simply sell 1 unit of
each the ed1/ed5, ed2/ed6, ed3/ed7 and
ed4/ed8. this is a great way of managing possies.
LEG1 LEG2 LEG3 LEG4 LEG5 LEG6 LEG7 LEG8
ED1 ED2 ED3 ED4 ED5 ED6 ED7 ED8
TRADE 1 1 1 1 1 1 1 1
TRADE -2 -2 -2 -2
TRADE -1 1
TRADE -1 1
TRADE -1 1
TRADE -1 1
0 0 0 0 0 0 0 0
7. conclusion
Many traders use this method to
scalp packs and bundles all day long.
I think with your speed edge, plus
signal strength you can trade the
inside market of the packs and
bundles, without having to worry
about having to sell the pack you
bought.