Buy Bonds. Buy Dollars. Wear Diamonds

Published on: May 20th, 2019

Raoul pulls the trigger on the long dollar trade and adds to his conviction in his bond positions.

Comments

  • DB
    Daniel B.
    4 June 2019 @ 04:22
    USD/DXY getting bit of a timeout at the moment - what's people's thoughts on sitting out of dollar bets until after the June meeting?
  • LV
    Lewis V.
    4 June 2019 @ 04:08
    This trade knocked it out of the park. Mice setup
  • FO
    Frederic O.
    3 June 2019 @ 12:08
    I've just got an account to trade eurodollar futures and will be able to make trades within a week. It feels like I've missed the train. Do you still recommend this actual setup or do you think another trade like March 2020 is better?
  • DY
    Dmytro Y.
    26 May 2019 @ 13:36
    Raoul, would you still suggest adding to GE calls 2020, 2021? i have a small position in the money now. Wonder if you would still recommend add up some more Eurodollars now after the rates had fallen from Nov 2018 and are much lower already. Thanks for your view
    • DY
      Dmytro Y.
      26 May 2019 @ 13:41
      or if the current options prices (premiums) have already priced in the lower interest going forward thus making GE calls for 2020-2021 not viable? Thank you
    • RP
      Raoul P. | Founder
      28 May 2019 @ 20:05
      Keep buying...
    • DY
      Dmytro Y.
      2 June 2019 @ 09:05
      Thanks, Raoul. How to express the trade USD vs HKD? i have IB and Saxo accounts. neither seem to have any FX options for this pair, nor options or futures for Gold denominated in HKD or even in RMB. it's only spot gold in RMB and HKD but not leverage which future or options would allow. Thank you for your advise
  • DB
    Daniel B.
    23 May 2019 @ 06:13
    Hi Raoul, Are you recommending 2s/10's steepener trade for your GMI clients? Will there be a time to back up the truck on 10 year treasuries again?
    • RP
      Raoul P. | Founder
      28 May 2019 @ 20:06
      Yes, for GMI I’ve dipped my toe in on the steepener
  • Yc
    Ying c.
    23 May 2019 @ 16:48
    Raoul, Thanks a lot for your reply previously. On the other hand, is Yen a better option over dollar? And What is your view on Gold?
    • RP
      Raoul P. | Founder
      28 May 2019 @ 20:05
      I prefer dollars
  • RH
    Rob H.
    25 May 2019 @ 23:11
    Why is JPY considered a safe haven currency when global market sell off? thanks far all replies in advance. I don’t get it since they have negative rates.
    • DB
      Daniel B.
      26 May 2019 @ 11:15
      Julian gave a good answer in a prior month’s comments (so he or Raoul can correct me if I cock it up). In short, Japan are net exporters of capital, so in risk-off situations capital comes home; hence the bid for JPY. Cheers
  • RP
    Roberto P.
    22 May 2019 @ 20:56
    Hi Raoul About HKD, Kyle Bass has commented many time how reserve has going down and you mention in this report again. But from what I see from Bloomberg, FX's reserves are near all time high at 1x GDP and with a positive current account seems unlike to break down. Can you comment on that ?
    • BD
      Bryan D.
      24 May 2019 @ 06:20
      Roberto you are correct. FX reserves are at an all time high and and I agree they have more than enough to defend the peg. What has materially decreased is Aggregate Balances which is in HKD and is the excess HKD cash in the interbank system once all the banks in HK have settled up for the day. These should be decreasing in order to get HIBOR to catch up to LIBOR (demand vs decreased supply effect is used to move HIBOR higher to reflect the importing of Fed policy via the currency peg). These seem to be getting confused in a number of reports but as Aggregate Balances are in HKD by definition they can not be use to sell to buy HKD to defend the peg. This is what the foreign reserves are and are predominately in USD. While i do agree with the long USD and long bonds view this distinction between the foreign reserves and aggregate balances is being misunderstood in quite a few places.
  • FO
    Frederic O.
    23 May 2019 @ 04:47
    Hi. What does it mean to buy the call spreads for three ticks?
    • WY
      Weikun Y.
      23 May 2019 @ 18:10
      buy 98 call and sell 98.5 call. 3 ticks as the cost was 0.03 per spread. It's more expensive now.
    • FO
      Frederic O.
      23 May 2019 @ 19:16
      I’m new to these types of trades. I’ve found a 3-month Eurodollar dec-19 that I can sell at 9771 and buy at 9773. I don’t see an option of any other prices such as 98 or 98,5
    • JL
      J L.
      23 May 2019 @ 22:19
      you can read about options here https://www.investopedia.com/terms/b/bullcallspread.asp
    • FO
      Frederic O.
      24 May 2019 @ 05:01
      Thanks!
  • MG
    Miguel G.
    23 May 2019 @ 14:13
    Hi Raoul I shorted oil via uso/long sco around 63 bbl on your dollar strength idea. I know youve been an energy and oil bear for a while, do you have a target in mind that you see crude heading to?
    • WY
      Weikun Y.
      23 May 2019 @ 18:16
      oil now 57 handle. what a great trade
  • WY
    Weikun Y.
    23 May 2019 @ 18:08
    Thanks Raoul. Eurodollars made a huge move today. Got into GE calls yesterday. Good trade so far.
  • SS
    Steve S.
    23 May 2019 @ 03:11
    Thanks Raoul. This is well thought out. I appreciate your recommendations and comments to some people's questions.
  • LV
    Lewis V.
    21 May 2019 @ 18:12
    Raoul the Eurodollar Optix is at 100 and hedgers are net short for the first time since 10/2015. The endogenous market structure looks suboptimal. Are you waiting for a pullback to size up or just adding to existing position right here
  • GP
    George P.
    21 May 2019 @ 17:54
    Raoul Can you recommend a commodities broker that you use or may suggest to use. Thank you
  • MS
    Mark S.
    20 May 2019 @ 22:30
    Hi Raoul thanks for being very specific and giving lots of options for the less experienced. To be clear on the interest rate instruments you are referring to the spread of the GE Dec 16 '19 98/98.5 call? Not the GE0, GE2 etc that expire on Dec 13? thanks in advance
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:49
      Correct
  • TJ
    Tyler J.
    20 May 2019 @ 22:57
    i am in individual who is not familiar with call spreads. Would you kindly walk me through EXACTLY how I would execute a December 2019 call spread?
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:49
      Buy 1x 98 call and sell the 1x 98.5 call. These are usually quoted as a "package'. Limited risk and limited reward but still a very good risk reward.
  • BR
    Brian R.
    21 May 2019 @ 01:01
    Finally you had the balls to make a clear call on the USD... the best pair to steal like a bandit is long USD/MXN. Highest liquidity in em fx, proxy for volatility.
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:48
      It was the right call not to. FX was in a range. Now it is not.
  • Yc
    Ying c.
    21 May 2019 @ 02:46
    How about USDTRY, USDZAR? What's your view on these two Raoul?
    • DB
      Daniel B.
      21 May 2019 @ 04:18
      There's high cost of carry on USDZAR so no good unless you get access to futures (same goes for TRY)
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:48
      Too volatile for me... but they are telling us that EM FX overall should weaken and global growth is an issue and there is a shortage of dollars. That being said, both are going to new all time highs.
  • PW
    Phil W.
    21 May 2019 @ 11:47
    Hi Rauol, great piece. Being a "newbie Marco Investor" I need to keep things as simple as possible and my capital in play is small. In terms of the BOND play- is buying the TLT still a potential trade? (or is it too much at the long-end of the curve). And in terms of the $- is being long the DXY a possible trade? (I can buy the DXY via Spread-Betting- meaning that I have no currency risk- it basically tracks the rise or fall the DXY per se)
  • HO
    H2 O.
    21 May 2019 @ 03:57
    Super strong $ has never helped reduce deficits, quite the opposite. Make it twin deficits and history favors a weaker currency. That aside, if a real trade war breaks out, not just these silly tariffs, we are looking at a deflationary global recession. Sharply lower trade flows means sharply lower demand for dollars. The rally would have to come from financial flows. What I think is missed is that the US has sucked in trillions of dollars in investment, and the source of these funds are offshore dollar liabilities. That is to say the run up in US asset prices is substantially a function of offshore dollar liabilities looking for assets, and USD bonds and equities have been on the receiving end because the US is the least worst option. If we do get a global recession, the dollar would spike before it crashes as all of this unwinds. In most cases recessions have kicked off major downward corrections for the dollar. The current level for DXY anyway is around 15 year highs.
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:46
      Usually the dollar rallies until the rates go on pause at the lows and then it collapses. Im am strongly in the spike then collapse camp over 3 years.
  • PH
    Pedro H.
    21 May 2019 @ 05:57
    Hi Raoul, I'm mostly an options seller type of trader, playing short-term vol crush with delta neutral strategies. But I'm really tempted to try your recommendation with this long call vertical spread on /GEZ9 options expiring Dec 16, 2019. Questions: 1) In absolute terms IV is very low compared to other options I trade. But the trading platform I use shows that IV for /GE is in the upper half percentile range. So don't know if I'm missing something... 2) How do you predict this will play? What confirmation should we expect to keep this trade?
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:45
      I almost never sell naked options but I do sometimes lower a cost structure by selling something way out of the money. Fixed income vols are very low right now, and that gives opportunity for more leverage. Confirmation needed is an economy that stays sluggish or slows and the global economy remain very slow.
  • VG
    Vivek G.
    21 May 2019 @ 06:34
    Hi Raoul - is buying the Futures - Eurodollar Dec 2019 - Spot basis likely to be equally effective? - would you clearly advocate doing the same for Dec 2020 and 2021? - how does one ascertain the quantum of investment in a risk Adjusted basis for the Dec 2019 recommended Eurodollar Trade? - could you explain how you arrived at the 16X on the Dec 2019 Eurodollar Call Spread recommendation Regards
    • RP
      Raoul P. | Founder
      21 May 2019 @ 11:43
      I cant really help with how you structure your trades. the futures carry more risk but the market is liquid enough to manage stop losses. Ti assign risk in futures I look at % loss of portfolio if my stop is hit. That is what gives you the leverage. The 16x is the max profit divided by the cost.
  • AS
    Alan S.
    20 May 2019 @ 20:08
    Good afternoon Raoul, What is your thinking on January 2020 outs on FXY? Still looking for a jubilee? Thank you if you have time to respond.
  • RH
    Rob H.
    20 May 2019 @ 19:47
    No options market to speak of in SHY. TD doesn't off Eurodollar options. Time to move to IB I think!
  • TB
    Thibault B.
    20 May 2019 @ 17:54
    Following up on your twitter remark - low vol and high forwards allows you do do some really leveraged (10x1) long-dated option trades on certain USD pairs.
  • MG
    Miguel G.
    20 May 2019 @ 15:28
    Raoul, have you looked at the spec money positioning in the eurodollar hedger position? Spec money got aggressive at the cycle peak last year but now they have unwound that position and are net short. While I agree that a rate cute looks likely this year do you think this spec money is correct to be leaning on the side of a more hawkish fed? Spec money positioning went from 4.7M summer of 2018 to -136k net short as of last Tuesday. Curious what you make of their positioning in the eurodollar market and what spec money may be positioning for?
    • MG
      Miguel G.
      20 May 2019 @ 15:33
      Looking over last two cycle peaks in the Eurodollar market spec money was building a long trade 12-24 months too early then as well so maybe their timing this time around is a good 1-2 yrs early.