The Next Leg?

Published on: October 21st, 2020

Raoul thinks it looks like a winter of discontent is coming and that sets us up for one of our favourite macro instruments… bonds.

Comments

  • LM
    Lawrence M.
    19 November 2020 @ 05:24
    Regarding the Eurodollar Call Option Trade. I'm using interactive brokers, any input on which "trading class" in the option selection screen I should select (GE, GE0, GE3, GE4)? If anyone has used the platform and can help I'd appreciate it. I'm assuming it's GE, but it's a bit confusing.
  • JM
    Jake M.
    27 October 2020 @ 18:07
    maybe I am a little late, but, RP mentions there's been a record short position on 30 year Treasury. Where can I find such information?
    • RP
      Rebecca P.
      28 October 2020 @ 18:32
      Steven van Metre talks about this a lot on his YouTube Channel - https://www.youtube.com/watch?v=IvHGhCpmSyw
    • MC
      Mason C.
      5 November 2020 @ 14:53
      https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm under financial reports.
  • MC
    Mason C.
    5 November 2020 @ 14:45
    Does libor going away not affect the eurodollar trade?
  • RR
    Raj R.
    26 October 2020 @ 20:07
    Arent both trades highly correlated? Does it make sense to pick one over the other? I dont see why would one want to be in both trades? @Raoul, what would be a good rationale to be in both trades?
    • HM
      Harry M. | Real Vision
      29 October 2020 @ 11:18
      When you say both trades you mean Eurodollars and long bonds? Yes definitely they are both bullish on rates. I think you should view them as substitutes, and not as different trades. Have you come across the concept of the Texas hedge?
    • RR
      Raj R.
      1 November 2020 @ 20:09
      I see. I havent heard of Texas hedge. A simple google search says you buy the underlying stock if you buy a call option? How is that a hedge?
  • AS
    Aaron S.
    29 October 2020 @ 22:47
    Structural question for all of you/ Raoul. Is there a reason to do the flat call as opposed to a call spread? Obviously a call spread limits your upside, but on the way up you make a lot more due to the increased leverage for the same amount of cash. An example for TLT is that it looks like your gains are such on a 170/180 March call spread that youd need to break 192 to make more with a flat call. I'm wondering how you compare those two or if it really just comes down to the fact that the "unlimited" upside is really what you're going for. 190 on TLT seems reasonable given the factors you identify here but by the numbers and the chart that's a "blow my socks off" kind of move in TLT in the next couple of months. So basically I'm asking: Is there a compelling reason to go flat call over call spread?
    • HM
      Harry M. | Real Vision
      29 October 2020 @ 23:07
      Obviously stepping in to answer for RP has its dangers. But its worth noting that we have had a decent sell off in rates in the last few months, so there is more upside than there has been. We also know that the potential upside on rates could run as far as negative policy rates. However there is definitely a case for call spreads if you have some good logic behind the level where you sell the otm call.
    • AS
      Aaron S.
      30 October 2020 @ 22:39
      Appreciate the reply Harry. Super helpful!
  • JY
    Jack Y.
    27 October 2020 @ 14:40
    What signals is everyone using to add to position?
    • AC
      Alexi C.
      28 October 2020 @ 15:17
      I was literally wondering the same thing, as this morning feels like a strong signal in favor. That said, LT treasury yields still haven't passed levels that were seen within the last 3-6 months. I'm thinking that if EU is going on lock down and everyone is now seeing this, the time might be now as the US doesn't have a great plan on how to "not" lock down. Anyone else have thoughts?
    • HM
      Harry M. | Real Vision
      30 October 2020 @ 10:34
      The key thing I am waiting for is counter intuitive price action. I want to see bond market strength, or equity market weakness that I cannot fully explain by news flow.
  • nw
    nicholas w.
    28 October 2020 @ 15:18
    Ive been a friend of Bill W for 25 years, and there is a saying- "You can save your Arse or your face". Fortunately I choose my Arse. In that spirit, can someone please help me? Very new to any sort of trading (less than 18 months timescale), I'm taking some lumps and bumps, but learning fast and doing OK . Most of our Money is with very long term Managers- so this is a hobby really (and I do not mix the two). My only access to trading so far is City Index in the UK. Everything there is done on Margin- and in some instances that is just not satisfactory. Is there an alternative UK firm where I can simply buy or sell options please? Suggestions would be welcome.
    • MC
      Mathieu C.
      28 October 2020 @ 16:28
      Interactive broker by far is what you are looking for for a sophisticated investor but options isn't a profitable business there since they sold this business to an hedge fund which basically harvest all its customer through mark to market implied volatility, lack of liquidity and (very) large spread for everything non us based. I wouldn't be surprised as well to hear they runs algo trading and provide liquidity on cash equities which makes the two very profitable for them, not for IB customers.
    • HM
      Harry M. | Real Vision
      29 October 2020 @ 11:32
      I use IB and I have used CI. I think IB is actually a little more difficult to use. Its definitely a learning curve.
  • KH
    Kavi H.
    22 October 2020 @ 15:47
    Hi Raoul, Thanks for the update. Could we potentially use the bottom side of the flat topped wedge as a stop loss on the TLT trade? Would it correspond to about 155 on TLT? Thanks Kavi
    • RP
      Raoul P. | Founder
      22 October 2020 @ 20:58
      Yes, but maybe give yourself more wiggle room than that.
    • AC
      Alexi C.
      28 October 2020 @ 15:18
      @RP What would you use as signal to buy more? It seems like we're getting market confirmation now and still room to go?
  • CC
    Christopher C.
    23 October 2020 @ 03:09
    Regarding Raoul's eurodollar call recommendation for 3 ticks. I'm familiar with eurodollar futures and options and my understanding is this would be .0075 per contract. However, my brokerage is quoting .03. What am I missing or misunderstanding? Thanks in advance for any help.
    • HM
      Harry M. | Real Vision
      23 October 2020 @ 10:46
      Its just semantics. Minimum tick size (the smallest unit of price for trading) is 1/2 a bp. But its not unusual for traders to refer to 1bps as a tick.
    • CC
      Christopher C.
      26 October 2020 @ 15:16
      Thank you, Harry!
  • CM
    Christopher M.
    22 October 2020 @ 18:35
    Regarding Raoul's ongoing (not addressed in this particular report) short of AT&T, it has been outperforming the shorts of GE and the BKX that he also recommended, as judged by puts I purchased on all three. Today AT&T's stock jumped up and the value of the puts went down, considerably. CNBC says banks are leading the way today and attributes this to rising interest rates. From a long-term view, is the success of the AT&T short dependent on low interest rates? Are they tied together today because AT&T has so much debt that we need significant interest rates to expect banks to keep lending to them and keep them afloat? Or is this just coincidence?
    • MC
      Mathieu C.
      23 October 2020 @ 14:40
      We are trading earnings at the moment rather than macroeconomics. GE has announced some time ago he will be positive free cash flow, since then the stock had been trading higher while people expected they would take the recession head on. AT&T is a rather complex case. In fact one could argue in a low rate environment where buying risk free assets like government bonds are not so risk free anymore and pays 0%, AT&T is the perfect high yield bond substitute which generates consistent, reliable cash flow stream and periodic cash payments to shareholders, not even mentioning a good inflation hedge. First to your point AT&T is not finance by banks as you understand it. It is way too big. Then in my opinion the success of a short on AT&T might depend on a deeper than expected recession due to its balance sheet leverage. During a recession, debts will be harder to refinance and operating income will likely drop also (large parts of the segmentation now are from content production, advertisement and subscriber) making it a vicious loop on already a highly leveraged company (LT debt / equity = 80%) and that is just the tip of the liabilities iceberg. However if the recession end sooner than later and clouds dissipate, this stock could be an attractive holding for the next cycle thanks to the "high yield" bond proxy which I mentioned previously. AT&T and banks are not tied together today in my opinion other than the fact there is a large discrimination today for basically everything such as value stocks, leveraged or non technology stocks being completely discarded by investors. As we go through the earnings seasons, for some names it is often better than what people feared. And this is the mood of this year end. People have so much negativity due to the second covid-19 wave it doesn't require very much to be positively surprised. Banks have released strong earnings and less provisions from their loans though. They trade favourably lately. Banks needs higher long term interest rate to increase their banking income or in another worlds a steeper yield curve and it might well happen. Short term rate won't be increased any time soon, however long term rate might have room to go depending on inflation. They gained this quarter from higher mortgage demands and trading revenue which makes them also a candidates for investors with a time frame, not speculators, for generous cash distribution or share buybacks (0.2 -0.4 price to book valuation for large European names). However they cannot distribute their cash before year end (at the very least) due to the regulator and that is probably the news you will want to watch as it could announce the return of investors rather than speculators for next year. In other words in my opinion today you should rebalance your portfolio for tomorrow and take advantage of incredible bargain deals all over the place, unless you really think this economy is over and it has another leg lower, then short everything but earnings doesn't reflect that scenario this quarter, it doesn't mean it won't next but until Q1 2021 - Q2 2021 bankruptcies are not being allowed by fiscal policies so it is hard to make sense of what is coming next when the life support will end and at which rate of speed it will end as governments obviously can't sponsor unprofitable business forever.
    • HM
      Harry M. | Real Vision
      26 October 2020 @ 12:15
      Mattieu makes many excellent points. Its worth also noting that Net Interest Margin has long been considered to be partially a function of the level of interest rates. So credit card stocks and banks will benefit given their advantage in accessing cheap credit (compared to consumers) as rates rise.
  • Dd
    David d.
    21 October 2020 @ 17:19
    how do I buy the eurodollar? using .euu ?
    • Mt
      Miami t.
      21 October 2020 @ 17:57
      Have the same question.
    • MH
      Michael H.
      21 October 2020 @ 18:36
      I just contacted TD Ameritrade and they confirmed they don't offer Eurodollar options unfortunately.
    • Mt
      Miami t.
      21 October 2020 @ 19:04
      Interactive brokers has options on the euro futures. EUR and then futures options.
    • jw
      jarkko w.
      21 October 2020 @ 19:48
      Ge is ticker on IB.
    • WM
      Will M.
      21 October 2020 @ 20:01
      These are the GEZ1 options, currently at 99.775.
    • Mt
      Miami t.
      21 October 2020 @ 21:38
      Will, can you explain a bit more how it works. Why is the GE dec future @ 99.765. EUR/USD is @ 1.1859 USD/EUR is @ 0.84 I dont get it?
    • MC
      Mathieu C.
      22 October 2020 @ 02:00
      "Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. Wikipedia" It is equivalent to short term interest rate in USD outside USA and a good proxy to trade fed rate. It is has nothing to do with the FX pairs EUR/USD. GE is the ticker in IB indeed and this is a contract futures so a little bit more sophisticated than the TLT trade.
    • IB
      Ivan B.
      22 October 2020 @ 03:20
      Miami t., Eurodollar futures had nothing to do with FX pair EUR/USD. It's trading interest rates, not FX. CME website have a good educational videos on Eurodollars, highly recommended to watch.
    • AH
      Attila H.
      22 October 2020 @ 05:28
      Eurodollar has nothing to do with the EUR / USD currency pair. It is just badly named therefore confusing. Eurodollar basically a cash settled futures contract based on time deposits of USD in banks outside of US soil. Its price moves in response to LIBOR rates.
    • Mt
      Miami t.
      24 October 2020 @ 11:32
      Thanks guys, that was helpful.
  • JS
    Jim S.
    23 October 2020 @ 02:03
    Not trying to be political here, just rational and objective. I like the idea... I’m envisioning Trump tries to pump stimulus until the election.. loses... contests... then won’t pass any stimulus out of spite. Yields fall post election until the next administration takes over. Thinking of delaying putting this position on until just before 11/3. BTW If you watched Max and Mish interview, why would a contested election necessarily be bad for the $, I could see it going the other way as well. Any thoughts, opinions, criticisms welcome.... I won’t cry or retaliate.
  • MT
    MICHAEL T.
    22 October 2020 @ 20:55
    Your TLT chart doesn't look like mine on any timeframe.
  • CL
    Cyril L.
    21 October 2020 @ 19:59
    I like it. I think that if the Fed goes negative they will go big. Negative rates in Japan and Europe are widely seen as having been unsuccessful, so cutting to -25bps or -50bps wouldn't necessarily provide much psychological shock. In typical CB mindset, they might convince themselves that the BoJ and the ECB failed because they didn't cut low and fast enough. There seems to be strong resistance to negative rates in the US so I wouldn't put a 60% probability on it, but I think if they go there they likely go to -1% right away. Didn't Ken Rogoff even argue for -3% Fed rates earlier this year? So lower probability but more explosive upside - still think it's a good trade, if sized appropriately of course.
    • JL
      J L.
      21 October 2020 @ 20:06
      I don't think they will but good point
    • HM
      Harry M. | Real Vision
      22 October 2020 @ 12:58
      Do you think? There are both costs and benefits to negative rates. Jumping to negative 3% would be uncharacteristically bold for the Fed.
    • CL
      Cyril L.
      22 October 2020 @ 19:42
      No I don't think they jump to -3%, and I don't think we see -3% in 2021 if we ever see it. Though they certainly went very hard and very fast in March. I agree there seems to be strong resistance within the Fed to negative rates, but that's the point. I think it's a low probability (20-30%) that they go negative, but if they do I don't see the point of cutting to -25bps or even -50bps. I think they go straight to -1%. Link to Rogoff's article: https://www.project-syndicate.org/commentary/advanced-economies-need-deeply-negative-interest-rates-by-kenneth-rogoff-2020-05 He acknowledges that there would need to be steps taken first to prevent cash hoarding on a large scale and/or shield small depositors, and he acknowledges the strong resistance to negative rates. But he advocates for deeply negative rates. I don't know how influential he is, but he's not a fringe economist, so I think it's an interesting article.
  • SN
    Stefan N.
    22 October 2020 @ 01:28
    Raoul would a diagonal spread work as well with a long 80 Delta call and a number of short OTM calls along the way, only to close the entire spread 30 days out? Why do you prefer a straight call? Would appreciate feedback on my thought process, cheers.
    • SN
      Stefan N.
      22 October 2020 @ 01:28
      This is on the TLT
    • RP
      Raoul P. | Founder
      22 October 2020 @ 02:33
      Too complicated for me...
    • SN
      Stefan N.
      22 October 2020 @ 16:54
      Was worried about time decay on such a long dated option if the underlying doesn’t increase enough to offset.
  • MK
    Mohit K.
    22 October 2020 @ 03:51
    raoul sir I am from INDIA i cant trade in whatever u recommended in this report...so please share your view how i can play this trade in INDIA....how i can take position in INDIA
    • RP
      Raoul P. | Founder
      22 October 2020 @ 10:54
      The bes proxy is to buy Indian 2yr and 10 yr bonds. Im very bullish on both.
    • MK
      Mohit K.
      22 October 2020 @ 11:39
      raoul sir right now india 10y yield trading @ 5.916 where u see after 3 months or 6 months?? i am asking u because in future only near month contract have liquidity...i have no issue in rolling over position month over month,,,, sir i just want to know from u that is it right strategy to take position month over month for the next 3 or 6 or 9 months??
    • RP
      Raoul P. | Founder
      22 October 2020 @ 13:29
      I think 3 months and roll it. Most futures contracts work the same way. Im not sure if there are options but if there are, go longer dated.
    • MK
      Mohit K.
      22 October 2020 @ 15:51
      Options are there but no liquidity there in any strike price in any expiry... Long term future also there but liquidity only in near month Thank you sir
  • CA
    Craig A.
    21 October 2020 @ 20:11
    How do I buy Eurodollar calls?
    • RP
      Raoul P. | Founder
      21 October 2020 @ 20:45
      Interactive Brokers is most peoples choice.
    • DD
      Darrell D.
      22 October 2020 @ 14:58
      If you are a TD ameritrade customer, you can buy them if you use the Think-or-swim platform.
    • JS
      Jim S.
      22 October 2020 @ 15:05
      TD Ameritrade doesn’t offer options on Eurodollar futures, just the futures. Am I missing something?
  • SY
    Shiva Y.
    22 October 2020 @ 13:01
    Dear Pro members, I see there are a lot of beginners here including me. Could other Pro members to help please answer our queries even though they sound silly? I asked: How many TLT calls should I buy? I don't know if it's too silly or something but I got no answer.
    • HM
      Harry M. | Real Vision
      22 October 2020 @ 13:10
      Shiva, the size of your position will depend on the amount of risk you want to take. This will depend on your financial resources, other risks (correlated or not) and your appetite for risk. For example, suppose I have substantial real estate exposure. My risk is higher rates. So I would not add substantially to my rate risk until I fix my mortgage rates.
    • IB
      Ivan B.
      22 October 2020 @ 14:22
      Shiva, I only spend 1-2% from my total capital on option trades. 1 option contract of TLT is currently $2.6 so it's $260. If this trade doesn't work, goes against you, you will lose all $260 premium you paid. But you can actively manage your trades and use stops, let's say if yields keep going up, you can stop yourself out when this option cost $2 for example (depends on your risk tolerance of course) and lose $60 on this trade...
    • WM
      Will M.
      22 October 2020 @ 14:38
      I gave you a perspective below and Harry I think confirm my approach. I am pretty conservative and sleep soundly over investment choices.
  • KH
    Kevin H.
    21 October 2020 @ 22:58
    I'm not seeing March 170 calls at $2.70. I only see an asking price of $2.55. Does this basically mean they have become cheaper since the report was put out? Thanks for your help. BTW - loving RV and have learned more in the past few mths than any university could offer!
    • SR
      Steve R.
      22 October 2020 @ 00:19
      Yes, that's correct.
    • SY
      Shiva Y.
      22 October 2020 @ 12:53
      Can someone please tell me how many calls one should buy based on Raoul's recommendation? I'm very new to option trading.
    • WM
      Will M.
      22 October 2020 @ 14:35
      Shiva see my comment to your question below. ASSUME you could lose it all if you want to be risk adverse. If that doesn't work for your figure reduce it until it does. Its a bet, I think Raoul is on the right track, but he could be wrong, thats life.
  • SY
    Shiva Y.
    21 October 2020 @ 19:04
    Thank you! Buy TLT Calls -- What is the modest quantity?
    • WM
      Will M.
      22 October 2020 @ 14:30
      Shiva "modest" is very relative to your circumstances. In my case I only bought $5k worth, which is a minuscule amount for my circumstances. But I will double that if things appear to be going the right way, and possibly double that again if I get more confident. I don't care if I lose that 5k. That might be one way to look at it if you are nervous on speculation.
  • MC
    Mathieu C.
    21 October 2020 @ 18:38
    So depressing... In two years of membership I really think I have never read once positive things about our economy and our world. Let me bring my light of hope in this channel (it needs it) before I switched this off. It is going to be fine people! Sorry to say that but no TLT won't increase another 20% in 5 months while it is still up 20% year to date. The volatility will be tamed easily with QE and a constant bias for rates to increase due to large deficit. This doom loop and pessimism has to stop. Yes this is tough, Yes many people and businesses have been knocked out but they are still here and proud to stand up. Fighting for their survival every day. Not everybody is speculating and wish to see the world collapsing. We are not fighting the usual demand shock induced by classic recession here, we are fighting the temporary liquidity crisis from fixed costs (which will be amortised into years). Is there a risk that it turns ugly, of course there is but there is also a very good chance despite the sanitary risks that with an increase of confidence and savings, we will experience the greatest bounce in global consumer spending and a boost from private savings going straight into financing the economy, not the tech bubble. Western economies just need to be a bit more optimistic. And it's a global problem indeed. Is all world going to the toilet? Of course not! Asia is waking up, Time for us to wake up. There are no money to be made in the downside. The future is the upside. Rates are increasing simply because of the expectation of higher borrowings and political uncertainty and it was much expected (without fed intervention). Governments around the world will start spending like never on investments rather than tax cut deficits which will contribute greatly to GDP and confidence. This is what I call the next leg! A moderate inflation will come and lift the burden of debt for both public and private sector. Am I really the only one here to see that playing? Why we will see inflation sooner than later? Because the rates will stop falling. Strange relationship isn't it? Trust humanity people, not speculation! Peace.
    • MH
      Michael H.
      21 October 2020 @ 18:48
      I think you're not understanding what Raoul is saying. MOST people are optimistic about the hope phase just like you are. People don't want to believe that it can and will get worse. They believe the gov't will just throw money at the problem as they have been doing in unprecedented amounts. Raoul is saying this is not going to fix anything and we still have faced up to reality, and I tend to agree with him. I'm seeing a lot of signs of it in the enterprise business that I work for also. If you're so sure feel free to bet accordingly, but why complain that Raoul wants us to be prepared and save our hard earned nest eggs?
    • JA
      John A.
      21 October 2020 @ 19:22
      I just don't see a bounce when food pantry lines are increasing citywide (NYC) and the only thing keeping millions of people from being evicted is the CDC. I've had no less than 4 people try to con my girlfriend into letting them stay at her apartment since she is moving in with me and her lease isn't up till February. I had to tell her why it was such a terrible idea because of her legal exposure once they have stayed past 30 days. This stimulus isn't getting to the people who need it the most. And it is going to get ugly for the lower rungs of society who don't have a cushion. This idea that we can ignore that is going to be a rude awakening I feel.
    • MC
      Mathieu C.
      21 October 2020 @ 19:43
      The point isn't about "a bet", Raoul trades recommendation (which are speculative and rational) or making money shorting banks and laughing about it at my next social dinner. The point is (and that's probably where I am getting fed up more and more with this service) for the sake of humanity and people which are fighting this pandemic every day, either in saving people life or simply surviving themselves, one (especially an influencer) has to be realistic and play his part. The odds are not 90% - 10% there will be a depression in 2021, banks will be nationalised, there will be a full lockdown this winter and any coming stimulus will be backward looking. I strongly disagree. There is another side to this story where all governments, central banks and private businesses AROUND the world AT THE SAME TIME threw everything at it and that people will observe social distancing rules so that we don't end up all of us lining up to get our next meal from the red cross.
    • AS
      Alan S.
      21 October 2020 @ 21:23
      Mathieu C., You think that there is a possibility that the world unites in a planned, co-ordinated attack on the virus to get it under control? I agree, what should have been done, was the West should have shut everything down, hard, for six weeks and all done it together. Root out where and who had it then, isolate it, and we could have moved on. But that would have required leadership, and certainly co-operation from the U.S. However, as we all know there is no leader in the U.S. at this time. Everyone outside of the U.S. is well aware, the "leader of the free world" was passed to Merkle four years ago, and at this point, the world, laughs at the U.S. and shakes it's collective head as to what a banana republic they have become. No one outside of the U.S. has respect for the U.S. government at this point. No one. And now that the rest of the world knows that approximately 40% of U.S. citizens suffer from serious mental issues (you would have to have serious mental issues to vote for Trump), I suspect foreign tourists will stop trips to the U.S. going forward for decades. Who wants to visit a country where 40% of the population is dangerously stupid? Anyway, when Biden wins, you think somehow the rest of the world will line-up to co-operate collectively? Nations cannot agree on what they should do internally, so a co-ordinated push for the saving of humanity by the masses...no. Never going to occur. And investing first considers possibilities, then probabilities and then a choice is made. The possibilities of mass co-operation are there; the probabilities of that? Fairly one sided.
    • IB
      Ivan B.
      22 October 2020 @ 05:40
      Mathieu C., I wish I had that much trust in governments around the world... Call me cynic but all they care is being re-elected. Yes, they will spend lots of money. Will it be productive? Nope! Why? Cause they don't care. It's not their money and all they need is a temp effect, some pick of activity. All infrastructure spending is very shallow. Why? Because big projects require time, planning, physical studies and so on. It's too hard and there's no interest in great infrastructure projects which would have made a difference. Lots of money will be spent to "improve" current infrastructure and reduce unemployment. That will do nothing positive for the economy long term.
    • WM
      Will M.
      22 October 2020 @ 14:27
      Mathieu, I appreciate your hopeful sentiment but after being on this planet for over 60 years now I simply can't agree with your optimism. The build up of debt to almost unprecedented levels combined with the extinguishment of interest rates, the crony capitalism, the increasing government incompetence, the MASSIVE wealth disparity, the over hyped markets, the pension fund disasters that are looming, the social safety nets now rapidly fraying everywhere, the destruction of small business due to covid, the social paranoia due to covid, the media bias and increasing amount of censorship, the simmering hatred of "different" tell me categorically that we in a major crisis that governments will do anything to try to stop. That "anything" will be printing more fiat of course and there may indeed be inflation big time on the horizon but I fear you are wearing rose colored glasses based on recent history. Of course the world will go on, but its going to be a very different world brother. Not one seen for at least 90 years and possibly worse... I am taking small bets on Raoul's perspective because it can cushion (but not necessarily alleviate) the pain to come. I think both Raoul and Julian are very responsible in their approach and comments. I am paying for this service because I believe it is realistic, and not the rosy bull I get from Schwab and Fidelity monthly about "staying the course" and all will just be fine in the end. Follow the money! (and those with wealth are increasing siphoning off money into precious metals, bitcoin, some cash and getting ready for the commodity gyrations to come. I do honestly wish you the best as I wish I could feel as you you.
  • NH
    Nick H.
    21 October 2020 @ 17:50
    Great report. Looks like Raoul and Julian have very opposite views on TLT. Any chance to have a short debate to see what makes a market?
    • Dd
      David d.
      21 October 2020 @ 18:06
      Agreed!
    • HS
      Haythim S.
      21 October 2020 @ 18:06
      My understanding, they both agree on higher TLT in 2021 !
    • HM
      Harry M. | Real Vision
      22 October 2020 @ 13:01
      RP and JB get together once a month to discuss markets. The next one cant be that far away. They almost always touch on this because US monetary conditions/policy is always an important question.
  • JI
    Janne I.
    21 October 2020 @ 21:20
    "The underlying instrument in eurodollar futures is a eurodollar time deposit, having a principal value of $1 million with a three-month maturity" How axpensive is 1 single contract?
    • HM
      Harry M. | Real Vision
      22 October 2020 @ 12:57
      Futures are difficult to discuss in terms of expense. There is initial margin and variation margin. The initial margin is the amount you put up on initiation of the trade. The variation margin is your mark to market, loss or profit. So if the trade goes your way, you have margin credited to your account. If goes against you, owe margin. In EDs, the underlying contract is 1mn, and the tick size is 0.005. Each 0.005 is worth $12.5. So a 10 tick move will cost/make you $12.5x10x2 = $250 You need to scale your trade appropriately given the potential loss to avoid losses larger than you are willing to bear.
  • MA
    Majed A.
    21 October 2020 @ 20:27
    Raoul if I may, Why would I wait for 170 strike if the price is currently at 160? Ist for the position cost issue? Or its to confirm the upper move has to start happening first? Or it doesn't matter as you are a MACRO investor and this difference 10 wont matter?
    • RP
      Raoul P. | Founder
      21 October 2020 @ 20:44
      Its because its not confirmed it if doesn't break there and 170's are much cheaper so offer more leverage if it does break
    • SN
      Stefan N.
      22 October 2020 @ 01:18
      For the TLT would it be ok to buy a 80 Delta March call and then sell short dated calls between now and then and close the entire trade 1 month out from March ie February? Or do you feel a straight call is better given conviction level?
  • JA
    Joseph A.
    21 October 2020 @ 23:08
    I’ve noticed an interesting behavioural spending trend that supports the 2021 hole concept Raoul mentions here. People within my circle who I know are expecting to have to tighten their belts soon either due to furlough or pay cuts or delays in getting projects off the ground due to covid etc, rather than saving the remaining money they have, they are instead tending to overspend, buying stuff they don’t really need. It seems partly linked to a thinking of missing out if they don’t buy it now because if they delay buying it they will not be able to afford it when the tap runs dry in the interim. If this is true and already baked into spending, assuming no stimulus plugs the gap, then I would expect Q4 retail sales to be below expectations and Q1 2021 to be a train wreck. On another note, my old airline that was arguably the best for having great salaries and allowances for pilots and usually strong balance sheet, just announced (after expiration of govt support package) huge job cuts and remaining crew can expect around 50% cut in pay and benefits but some of those benefits get grandfathered for 2 years. For Hong Kong cost of living that‘s a heck of a haircut for a lot of employees.
  • GH
    Gavin H.
    21 October 2020 @ 19:49
    Would UK Gilts look a good trade too on the long side?
    • RP
      Raoul P. | Founder
      21 October 2020 @ 20:45
      Well, they have made their first move to zero but yes, probably go more negative.
  • GS
    Greg S.
    21 October 2020 @ 20:10
    To the extent people don't have long term memories, but do have short term memories. Doesn't gold survive any selloff this time in anticipation of support associated with lockdown.
  • DE
    Daniel E.
    21 October 2020 @ 19:46
    Sadly, I am also not able to trade the ED options (TD Ameritrade).. Raoul, are there any other ways of trading this?
  • JH
    Jack H.
    21 October 2020 @ 18:50
    Hi, I'm in the UK and have no idea how to trade either of those instruments. Could anyone please help me out?
    • JH
      Jack H.
      21 October 2020 @ 18:50
      And for clarity, I mean that I don't know a good broker that offers them
    • CL
      Cyril L.
      21 October 2020 @ 19:44
      Interactive Brokers is good imo and you can open an account in the UK.
  • RL
    Robert L.
    21 October 2020 @ 19:09
    Great paper, lets see how this one goes.
  • WM
    Will M.
    21 October 2020 @ 18:08
    ....yes would appreciate some clarity on that eurodollar trade as the last ED recorded seemed to have a lot of questions about it. I managed to make a small amount on TLT before and got out before it turn down significantly. So very comfortable with TLT reco