Flash Update – June 12, 2020

Published on
June 12th, 2020
Duration
15 minutes


Flash Update – June 12, 2020

Insider Talks ·
Featuring Raoul Pal

Published on: June 12th, 2020 • Duration: 15 minutes

Raoul Pal has a quick update for Real Vision Pro members after yesterday's pullback. He argues that we’re entering "the perfect storm" and discusses how fiscal stimulus lightening up from now through September will almost certainly have a negative effect on unemployment. He also shares his thoughts on European debt mutualization, his insights on vaccine development, and his trade recommendations going forward. Filmed after market close on June 11, 2020.

Comments

  • CF
    Christopher F.
    18 June 2020 @ 01:00
    Bizarrely, schwab has not had a quote on this trade since Monday. I've called them twice and not gotten a great answer, just that it's an error on their system. Anyone else having this issue?
    • sm
      sylvain m.
      18 June 2020 @ 14:20
      yes, I have not been able to get this filled yet on Schwab either
    • PG
      Philip G.
      26 June 2020 @ 20:04
      Should be working now.
  • RY
    Roy Y.
    22 June 2020 @ 10:47
    Thank you Raoul for the update .... Hear you loud and clear ...
  • SG
    Seth G.
    15 June 2020 @ 01:55
    Does anyone place stop limits on this type of trade (or is it ride or die)? I've been experimenting with utilizing stop limits on equity call options recently, but don't really have any statistically significant results to back up whether or not this is a good risk minimization tool. Thank you in advance.
    • DR
      Derrick R.
      22 June 2020 @ 02:51
      I don't think stops work well for options. For options it's probably better to manage risk with position sizing rather than stops as the price can be much more volatile. Also for call options, you can consider a vertical spread which allows you to enter the position at less net cost than purely buying calls, with the tradeoff of capping profit potential (but still leaving room for very attractive gains).
    • DR
      Derrick R.
      22 June 2020 @ 02:55
      I recommend you join the slack group that was set up, there's even a channel for this trade where another member is describing his vertical spread position on this trade. The channel is #zt-trade Request an invite here: https://join.slack.com/t/rvfans/shared_invite/zt-fdx990xs-nJpmfu2dhmCGZq1NlpPiEQ
  • MP
    Mark P.
    15 June 2020 @ 23:47
    Raoul and others, does the Fed’s move today to buy individual corporate debt delay the insolvency phase taking some steam out of this trade?
    • PS
      Parminder S.
      19 June 2020 @ 17:57
      I dont think so. My understanding is that liquidity requires income (the fed is just back stopping the previous loans for the chosen few) therefore it would not prevent or delay the insolvency phase. That is my understanding of the "pushing on the string" part.
  • MP
    Mark P.
    12 June 2020 @ 16:46
    Long time sub/founding member, but retail investor with very limited options experience. Any help greatly appreciated as I can find option chains on SHY, etc, but not on 2 y notes specifically in my Schwab account. I am activated for options, but not futures, if that is the area I need to go to put on trade. A small initial position. Any guidance greatly appreciated.
    • VN
      Vivek N.
      12 June 2020 @ 16:58
      You would need options on futures for this. Futures tend to be more liquid than etfs like SHY. Two year futures symbol is /ZT
    • DF
      David F.
      12 June 2020 @ 18:41
      Hello. You need to apply for futures in Schwab. You can do it digitally and it might take a couple of days to get approved. Once you are approved you can do it through StreetSmart Central. The ticker of the U.S. 2-Yr. Notes SEP 2020 future is TUU20 When you are looking at the options make sure you get the 08/21 expiration as Raoul was suggesting Good luck!!
    • MP
      Mark P.
      13 June 2020 @ 00:06
      Thank you both! David, I was able to open and fund a futures account in Schwab in less than 30 minutes! With your ticker assistance, I was able to place ( practicing as after close) TUU20 futures option Buy to Open 110.5 call with 8/21/2020 expiry. Markets are ( thankfully!) closed and prices have risen, I gather from the thread. I don’t want to overpay, but the tick jargon has me confused on limit pricing. Any guidance there to stay close to Raoul’s limit with Schwab pricing? Thanks in advance and last q on subject! Mark
    • DF
      David F.
      15 June 2020 @ 04:18
      Limit the price to 0-3 (That is 3/64th) That should be 93.75 USD per each option as Gerti D was pointing on a comment above. You can see the options contract specs here: https://www.cmegroup.com/trading/interest-rates/us-treasury/2-year-us-treasury-note_contractSpecs_options.html?optionProductId=304&optionExpiration=304-U0#optionProductId=304 One tick is One-half of 1/64 of a point = $15.625. If you see Raoul's clarification his entry price is 3/64 (that is 6 ticks, again see Gerti D's post)
    • IB
      Ivan B.
      15 June 2020 @ 07:51
      David, thank you for your clarification, it helped a lot! Ivan @IvanBiletsky
    • CF
      Christopher F.
      18 June 2020 @ 01:01
      Bizarrely, schwab has not had a quote on this trade since Monday. I've called them twice and not gotten a great answer, just that it's an error on their system. Anyone else having this issue?
  • KH
    Kavi H.
    12 June 2020 @ 17:31
    Thanks for the update Raoul. What would be the price of ZT if we reach a 0% Yield? Thanks Kavi
    • SS
      S S.
      12 June 2020 @ 17:59
      Yes and whats the price if -0.25 yield. Only someone will access to Bloomberg terminal can tell us.
    • JK
      James K.
      16 June 2020 @ 02:07
      If anyone knows the math on this I would appreciate it as well if they would share.
  • GD
    Gerti D.
    14 June 2020 @ 11:48
    Just to clarify how would you write the price to pay of 3/64th in broker friendly way? a) 0'025 b) 0'015 c) 0'03 d) other? Thank you
    • LH
      Luis H.
      14 June 2020 @ 18:58
      C) 0’030
    • GD
      Gerti D.
      14 June 2020 @ 19:47
      Thanks Luis, but here is where it gets confusing. I am using IB and in their platform I see that the the minimum Tick Size for the price to pay for this future call is 0'005 which also is 1/2 of 1/64th or 1/4 of 1/32th as it is the same thing. So if 1 Tick is 0'005 then 3 Ticks is 0'015. But eventually I think that what Raoul meant was to buy the call for 6 Ticks and not 3 Ticks. So with 6 Ticks we have 6 x 0'005 = 0'030 To go 1 step further for others that are wondering how much does that cost in USD and decimal numbers than here is the math: For 2 year T-Notes the Tick Value is 15.625 USD. The Tick Size is 1/2 of 1/64th = 0'005 So for 6 Ticks or 3/64th you have 6 x 15.625 = 93.75 USD So the price in USD is 93.75 USD in order to pay for buying 1 Call Option for September 2020 Futures of the 2 year T-Notes with the Strike price of 110.50 Hopefully my calculations are right and understandable
    • LH
      Luis H.
      16 June 2020 @ 00:09
      The way I see it a tick is 0’010. So 0’05 is half a tick
  • LH
    Luis H.
    13 June 2020 @ 15:54
    If the risk of rates going higher is not big, why not using futures directly ?
    • WM
      Wolfgang M.
      15 June 2020 @ 06:24
      Probably risk control. There's never 100% on anything, and if this moves against you, this could hurt. Even if that was just 5% probability, that would be a headache to deal with, when there's retail investors like some of us caught up in futures moving against us
    • am
      alexander m.
      15 June 2020 @ 14:40
      options offer great leverage, especially when you want to bet on small moves in an underlying
    • LH
      Luis H.
      16 June 2020 @ 00:05
      Sure, probably I will do a mix of both, but I will start with some futures. Options are expensive at the moment for the upside they have.
  • MH
    Malcolm H.
    15 June 2020 @ 20:42
    Audio?
  • BF
    Brad F.
    12 June 2020 @ 21:11
    RV Fans Slack Channel: It would be great if we had a more direct way to interact as a community, there have been a lot of calls for an open forum we don't have one yet. So I have just setup an unofficial Slack called "RV Fans" we can use to communicate; if it takes off maybe RV will take it over, and if it doesn't work out then no real loss. Request an invite here: https://join.slack.com/t/rvfans/shared_invite/zt-fdx990xs-nJpmfu2dhmCGZq1NlpPiEQ @Raoul & Co if you guys want to take ownership of the Slack team or replace it that is fine with me, you have my email so feel free to reach out :-) I hope this is not a breach of the ToS!
    • PB
      Paolo B.
      12 June 2020 @ 21:19
      Great idea as I am not too familiar with some of the more sophisticated trades. I would prefer Twitter as I already use it but can adapt 😀
    • RP
      Raoul P. | Founder
      12 June 2020 @ 22:43
      This is GREAT! We are working towards a better community based functionality but it will take time. I’ll try to check into the Slack from time to time but I’m really swamped for time. I hope it takes off!
    • CD
      Chris D.
      13 June 2020 @ 00:38
      Discord is much more 2020 :)
    • SW
      Sarah W.
      13 June 2020 @ 04:16
      I gave this feedback in the recent survey. A forum for members to share their ideas/opportunities based on the information/education that RV provides. We can all help one another as a community then.
    • IB
      Ivan B.
      15 June 2020 @ 08:01
      Great idea Brad, thank you for organising it. I'm not very familiar with Slack, but it would be good not to have it open to all RV Fans, otherwise we never will get trades at the right price. Not sure if this can be organised though. Cheers, Ivan @IvanBiletsky
    • PV
      Peter V.
      15 June 2020 @ 10:10
      Link still working? (Maybe use bitly.com to shorten the invite link address)
    • JW
      Jim W.
      15 June 2020 @ 11:13
      I'm on board with this, but I would like to make sure we keep the insiders trade information separate from the rest of RV discussion.
    • IB
      Ivan B.
      15 June 2020 @ 14:24
      Jim, it's almost impossible to arrange. First we don't know who's subscriber and who's not. If a Pro member shares this link with someone else, no one can check it. On top of it, if someone's subscription to Pro level expires, they will still have access to Slack for the same reason... I like the idea of the forum a lot but do have concerns that all these trades will be out there and it will be messing with our entry prices...
    • BF
      Brad F.
      15 June 2020 @ 17:54
      Here is a short link as requested: https://bit.ly/slack-rv-fans
  • SD
    Scott D.
    14 June 2020 @ 22:12
    any chance someone could link me to the correct market on Interactive Brokers please? so may markets. thanks
    • BF
      Brad F.
      15 June 2020 @ 17:50
      /zt
  • MJ
    Matthew J.
    15 June 2020 @ 12:29
    Raoul, what is the ticker for the 2 yr cut 110.5 sept call option on Interactive Brokers please? Thanks
    • MJ
      Matthew J.
      15 June 2020 @ 12:32
      Is it ZT?
    • BF
      Brad F.
      15 June 2020 @ 17:49
      /ZT
  • KH
    Kavi H.
    15 June 2020 @ 04:40
    Hey guys, is anyone else concerned that in the daily briefing video Raoul mentioned he thinks there is a higher probability that equity market has turned (60%) than the dollar weekness is over (50%) Cheers, Kavi
    • RP
      Raoul P. | Founder
      15 June 2020 @ 10:57
      Dont read too much into it...we are still in the "proof" of hypothesis made is my only point.
    • KH
      Kavi H.
      15 June 2020 @ 15:48
      Got it thanks for replying Raoul.
  • mp
    michael p.
    15 June 2020 @ 01:59
    Can anybody assist on how do this trade in a Schwab account?
    • DF
      David F.
      15 June 2020 @ 04:31
      There is a comment below that has the info Good luck!
  • SB
    Steve B.
    14 June 2020 @ 17:01
    thanks Raoul. would buying say, 20 delta spy be a good way to hedge these trades?
    • RP
      Raoul P. | Founder
      14 June 2020 @ 21:43
      Could be. Although Im more tempted to buy 20d SPY puts ;-)
  • AA
    Alberto A.
    12 June 2020 @ 18:57
    Thanks for the update. Can you please clarify the call spread for the 5 year bond trade you mentioned. I never saw this coming through in a video, your conversation with Julian, and/or the portfolio trades update. I see there are a few of us with the same comment. Thanks
    • BF
      Brad F.
      12 June 2020 @ 19:14
      It's in the June 1st portfolio update: Buy US 5-Year Notes Call Spread Buy 1 x 126.5 Jun Call - Sell 1x 127.5 Jun Call The trade went out in the April 23rd video
    • AA
      Alberto A.
      13 June 2020 @ 00:27
      Thank Brad...this is the trade I have since April. What I meant is if there was a call to roll the position to another expiration date or just let expire the call spread worthless....I guess you have it on...
    • BF
      Brad F.
      14 June 2020 @ 14:45
      I did have it on, I wish I took it off a few days before expiry when it was handsomely in the green! The April trade expired Out of The money and there was no recommendation to roll. This new /ZT trade replaces the April trade, now targeting the 2y instead of the 5y as it should move quicker, but the 5y trade is still a valid way to play the same thesis.
  • MT
    Michael T.
    14 June 2020 @ 04:51
    Thanks Raoul, great video. I live in Australia and trade on IG Markets - I can trade Treasury Bonds with CFDs, but not options. Are there any other platforms that I should consider for a pending bond trade using options? Cheers, Mike
    • PV
      Peter V.
      14 June 2020 @ 10:07
      Interactive Brokers
  • JI
    Justin I.
    13 June 2020 @ 18:22
    There are very strong seasonal patterns (almost to the day) of treasury yields due to predictable changes in the Treasury Cash Balance. 2020 is tracking 2015 VERY closely so far (except for the March crash). Yields seem likely to bottom within the next 2 days (if Thursday wasn't the bottom) and may rise into the end of the month, so the 2-year futures trade could be slightly early. 2020 compared to 2015: https://www.dropbox.com/t/9q6LHV6Bb7g35Ncy Zoomed in, higher fidelity view: https://www.dropbox.com/t/nJNbJRxRN7yf4GRp That being said, we just entered a seasonal liquidity drought period for the equity market (equities tend to correct in June and short-term bottom around the end of the month. In 2018 it was 6/27 In 2017 it was 6/29 In 2016 it was 6/27 In 2015 it was 6/29, but with a recovery early July then a larger fall after. FWIW, DXY also correlates well to TCB, which suggests that DXY is about to rise sharply...
  • AP
    Alfonso P.
    13 June 2020 @ 15:27
    This is the real RV! Thanks. +
  • cs
    chandrasekar s.
    13 June 2020 @ 14:55
    I know most of us don't like CNBC but here is the contrarian article. By watching RV we all know why the market is up though economy is not...here is the recap...literally don't fight the FED which is the famous adage since 2009... https://www.cnbc.com/2020/06/13/top-investors-cite-historic-policy-after-markets-return.html I'm still gonna make this trade.
  • yc
    yu c.
    13 June 2020 @ 09:46
    Licking my chops..
  • SB
    Stephen B.
    12 June 2020 @ 20:15
    You mention Finland and the NL as unwilling to bail out the south. Don't forget Denmark. For me they are most likely to leave the EU next. They also have the advantage of having their own currency.
    • JI
      Janne I.
      13 June 2020 @ 09:05
      More and more anti EU and euro politicians here in Finland. I think this is getting more common in the future across the EU.
  • DD
    Donal D.
    13 June 2020 @ 08:02
    Great update which I appreciate but have a question which one of the other subscribers may be able to help with. I dont have the ability to trade future so if I want to do this trade will be restricted to call optIons of SHY. Closing price was 86.55 and the last call option trade for Dec 2020 was 86 for 0.55 and 87 for 0.2 and looking back at the past few months the high for SHY was 86.78 at the end of April. I guess my questiosn are: - If rates go to zero what is a reasonable proce for SHY to rise to ? - Is there enough leverage in options as opposed to futures to make the trade worthwhile? Thanks for any and all inputs Donal.
  • ML
    Michael L.
    13 June 2020 @ 07:47
    Many thanks Raoul!
  • RP
    Raoul P. | Founder
    12 June 2020 @ 18:35
    Sorry, I misspoke so lets clear this up! The Trade is buying September 110.5 calls on 2-year note futures for around 3/64ths. Zero rates equates to around 110.75. Because these are quoted in 64ths, that equates to a cost of 3/64ths to make a target value of 16/64ths. Negative rates might take it to 111 (which would be worth 32/64th on expiration). I hope that clarifies it. Sorry, one of the issues of recording a video at 9 o'clock at night and rising it out...! I know the translation from bps to 64ths is confusing but its how it is!
    • SS
      S S.
      12 June 2020 @ 18:40
      Nailed it, thank you. Everything clarified now.
    • SS
      S S.
      12 June 2020 @ 18:42
      Simplified even further for those who want to know. If you get in at 0.03 0 rates - 5x your investment Negatives rates - 10x your investment
    • MD
      Michael D.
      12 June 2020 @ 18:59
      Very clear, thank you yet again!!
    • JM
      Jake M.
      12 June 2020 @ 19:03
      Dumb question. How do I know how much 64th equates in dollar amount ?
    • AP
      Aneil P.
      12 June 2020 @ 19:32
      I am looking at my think or swim platform. The instrument you are referring to TDthink or swim is /ZTU20. Currently the bid on that is 0'020 and the ask is 0'022. So two questions and confusions. 1. What does ' after 0 mean? 2. If those bid and ask is 0.020 and 0.022 then you are telling us to buy this at 3/64 = 0.047 . That's twice the current bid amount. What is going on here? Someone translate this for me on how to do this on Think or Swim.
    • CD
      Chris D.
      12 June 2020 @ 19:34
      3 ticks guys not 5 ticks, y’all have moved the market...
    • GP
      Geoff P.
      12 June 2020 @ 20:02
      Aneil, on TD they're not priced in 64ths. 0'020 is is 2/32 (or 4/64). TD prices as follows: 0 (whole point) ' (point separator) 00 (numerator on 32nds) 0 (quarters of 32nds). The key to note is the quarters don't read 25, 50, 75, they read 2,5,7 so... 0'022 is 2.25/32, 0'025 is 2.5/32, 0'027 is 2.75/32. Don't ask me why they're priced in 1/4 of 32nds when the cme contract states 1/2 of 64ths. You can obviously convert, but this is how TD decided to do it. The best idea is to create a spreadsheet with the tick values (15.625 in this case for 2 year note options on futures) and do the math on the various pricing structures to get a feel for how your broker works. You can check the math by entering an order and not sending it. Brokers do differ in pricing. Some brokers will price in 64ths. Hope this helps.
    • GP
      Geoff P.
      12 June 2020 @ 20:02
      Lol yeah they did Chris
    • JM
      Jake M.
      12 June 2020 @ 20:07
      what's the math behind that zero rate would price at 110.75?
    • SN
      SAT N.
      12 June 2020 @ 20:13
      Thanks Geoff. That is super helpful.
    • AH
      Alan H.
      13 June 2020 @ 05:42
      Thanks - please add written instructions with every video like this. Loving RV!
  • NM
    Nicholas M.
    13 June 2020 @ 04:00
    🙏
  • SR
    Stu R.
    13 June 2020 @ 00:25
    My head hurts. On Saxobank the last traded price was 0’4.0 for the Sep 110’16.0 call. If I were to bid 0’4.0 it would cost $125 premium. Does this mean? a) The 0’4.0 price is 4 ticks, there are 4 ticks in each 1/32. So the break even price is 110 + 17/32. With 7/32 profit for zero rates (24/32). So 7x on the 0’4.0 price. b) The 0’4.0 price is actually 4/32, so the break even price is 110 + 20/32 so only 4/32 profit for zero rates (24/32). So 2x on the 0’4.0 price. c) something else. RP mentions 1/64 as tick sizes, which are either half or double the size of the 1/32 based quote or 1/128 tick size number I am seeing on Saxobank. There is a lot of scope to overpay on this trade, any guidance would be appreciated. Thanks
    • SR
      Stu R.
      13 June 2020 @ 03:20
      Or more likely 0’4.0 = 4/64ths = 4/64 * $2,000 = $125 The underlying is quoted using 1/32 base, but the option pricing is quoted with a 1/64 base. So at zero rates, gain would be 16/64 - 4/64 = 12/64 = $375 Only in lockdown would you spend a Friday night learning treasury option pricing.
  • GD
    Gabriel D.
    13 June 2020 @ 02:34
    WHO IS CUTTING HIS HAIR ON LITTLE CAYMAN HE LOOKS LIKE A GOD.
  • HH
    HODL H.
    13 June 2020 @ 02:33
    Can hear the gud bois tryin to get sum luv in the office
  • RR
    Romein R.
    13 June 2020 @ 00:54
    Hey Raoul, thanks for the update. Just a heads up, the major income for people are the unemployment payments of roughly $5000/month, I don't think the $1200/person really goes that far, enough to pay rent for a month or 2, not factoring for other expenses (which it's already been like 3 months).
  • SD
    S D.
    12 June 2020 @ 22:38
    Thank you.
  • JM
    Jake M.
    12 June 2020 @ 21:07
    Why are we so confident that the rate would have to go to 0 by "September"? Is it simply because of the fiscal policy running out of steam by July? Raoul mentioned that the issuance of treasury would suck liquidity out of market, but then, this also means more supply of treasury forming a resistance floor on the 2 year rate?
    • JW
      J W.
      12 June 2020 @ 22:04
      I think the reason is that the option contracts don’t go any further out. If at the time we need to further extend, we can roll over (or close out and start a new contract).
    • JM
      Jake M.
      12 June 2020 @ 22:17
      thanks. But I guess we loose money if rate doesn't change at all by then. Since this seems to be a high probability thing to play out according to Raoul, what do you guys think are good hedges in case the rate doesn't drop?
  • DM
    David M.
    12 June 2020 @ 20:03
    @Raoul is it possible that you guys could make a video, or even direct us to a place where we can learn about understanding ticks and how to do the math on these trades? I understand basis points but converting to ticks has been throwing me off. Thank you sir.
    • JW
      Jon W.
      12 June 2020 @ 20:28
      I found this useful: https://www.cmegroup.com/education/courses/introduction-to-treasuries.html
    • RP
      Raoul P. | Founder
      12 June 2020 @ 20:56
      Yeah, its a pain for us all! I make mistakes all the time too...
    • AS
      Ash S.
      12 June 2020 @ 21:13
      If we could get a slack channel, other members of the community could help out people like David.
  • AS
    Ash S.
    12 June 2020 @ 21:11
    Thank you Raoul! I love being part of this community. Please do flash us a 'pile in' note at the right time :). I hope you and the RV team have an awesome weekend mate!
  • JM
    John M.
    12 June 2020 @ 18:56
    Thanks for the timely update. Do you still feel gold will hold up in a big USD move?
    • RP
      Raoul P. | Founder
      12 June 2020 @ 20:57
      yes...
  • JW
    Jon W.
    12 June 2020 @ 20:26
    I'm curious why the 2y call rather than the 5y spread used previously. IB shows the former having a 600% return if rates hit zero vs. a 1200% best case return for the spread (also at zero). Are you less confident the 5y goes to zero at this point?
    • RP
      Raoul P. | Founder
      12 June 2020 @ 20:55
      Because of the timing. We don't have a lot of time for 5's to get there. We tried once but I think its safer in 2's but 5's might work too.
  • BF
    Brad F.
    12 June 2020 @ 19:04
    This fractional pricing a is a headfuck. Please can someone tell me if I am on the right track here? A "Tick" in /ZT (2 Year Note) futures is "one-eighth of a thirty-second" of one point rounded to the nearest basis point. So one tick would be 1 divided by 32 divided by 8 or 0.00390625 as a decimal number. A point is equal to $2000 and therefore a Tick is worth $7.8125. The bid for /ZN as a type is 110'111 (110 points and 111 "ticks") which translates to 110.34765625 points or $220,695 per contract. The target strike of 110.5 (decimal) translates to 110'160 (ticks) which is a 39 tick difference from the current bid and gives the contract value at $221,000 (an uplift of $305) - this matches the $7.8125 per tick * 39 ticks nicely. So far so good... The option contracts are spec'd with a "Face value at maturity of $200,000". They are priced in increments of "One-half of 1/64 of a point” increments with 1/64 = 1 Tick. Again a point is worth $2000, which means an "Option Tick” is worth $31.25 or 4 * Underlying Ticks. The 110.5 Aug/Sep PUTs are trading at 0’040 which is 4 “Option Ticks" (not 40 - the third decimal denotes half a tick when it is a 5) which is 0.0625 “points” in decimal and therefore $125 USD per contract. So that implies: * Upside to 110'240 or 110.75 (Zero Yield) is 130 underlying ticks or ~32.5 Option Ticks * Price of the option is 4 Option ticks * Risk reward is therefore 32.5/4 = 1:8 * Cost basis of $125 per contract and would yield $1,015.63 if the target price is hit and maybe more if it goes further Life is so much easier in basis points...
    • BF
      Brad F.
      12 June 2020 @ 19:38
      My ROI numbers are a way out from Raoul’s below so need to take another shot at this later.
    • GP
      Geoff P.
      12 June 2020 @ 20:06
      Option tick value is 15.625 in increments of 1/2 of a 64th (128 total ticks), you're on the right track with the underlying but your option math is off.
    • BF
      Brad F.
      12 June 2020 @ 20:40
      Thanks Geoff. The most likely explanation is $1000 per point not $2000 per point, but then I can’t explain why one contract costs $125 on IB if it is 4/64ths x $15.625
    • GP
      Geoff P.
      12 June 2020 @ 20:54
      4/64th is 8 ticks (4 times 2 since they price in halves of 64ths there are twice as many ticks as there are 64ths). 8 ticks times 15.625 = 125
  • SN
    SAT N.
    12 June 2020 @ 20:34
    Wondering about the choice of 2 year. How does the risk-reward for 5 or 10 year compares to 2-year? About the same? Is 10-year close to zero more probable (flat yield curve) than negative rates for 2-year? 10 yr. is at 70bp. If 10 year goes to 0, it will move from 138.5 to ~145.5. Call option at 141 costs about .3
  • gb
    garrett b.
    12 June 2020 @ 17:20
    I guess I missed it when the ZF turned into a dead play. Anyone know when this was mentioned?
    • AA
      Alberto A.
      12 June 2020 @ 18:50
      No...I missed that too...he mentioned rolling the call spread...never heard about this or not on any portfolio update...strange
    • JA
      John A.
      12 June 2020 @ 19:56
      I think he was thinking of trying it again before the whole blow up in the yields. Probably noticed that the 2Y didn't respond when the others did and decided to make the next play in the 2Y instead. My guess anyway.
  • SS
    S S.
    12 June 2020 @ 18:33
    This is my strategy. The 2-Year Options trade priced at 0.045 right now if you want to buy them and pretty much double the premium at the moment than the 99.75 December20 Eurodollar calls. I'm already in EDs. I will wait for a pullback in the 2 Year Options trade to get to 0.025 before getting in. Will go long 2-year futures on a sell off when the S&P rises. Will take my time, won't dive in.
    • JF
      John F.
      12 June 2020 @ 19:18
      Steve, I think it's important to use the right nomenclature: the 2-year options are currently priced at 0"045 (or 4.5 ticks), not 0.045. And I think you mean you will wait until that price falls to 0"025 (or 2.5 ticks). Some people might be thinking you meant decimals. Of course it's confusing because the strike prices (110.5, e.g.) are in decimal format so it gets confusing...
    • SS
      S S.
      12 June 2020 @ 19:28
      Hi John, I used . instead of ' but the point is the same. I shall wait until 0'025 price gets hit rather than overpaying at 0'04.5 There will be pullbacks so theres no FOMO on my side to dive in today.
    • CD
      Chris D.
      12 June 2020 @ 19:35
      Exactly; entry matters here, RV pro subs have moved the market, and market makers will sell you calls at 5 ticks all day long right now
    • SS
      S S.
      12 June 2020 @ 19:39
      Yes, getting in at 5 ticks essentially cuts your potential to 3x if you yields hit 0 and 6x if negative. I will gladly wait on the sidelines for some pullbacks and buy at a better entry when people capitulate once the trade goes against them.
  • PS
    Parminder S.
    12 June 2020 @ 19:36
    I have recently joined RT pro and can definitely see what RP meant by a community! I had no idea what he was talking about until I read these comments and his explanation. Thank you
  • DR
    Derrick R.
    12 June 2020 @ 19:07
    Can anyone here provide opinion for US based individual to execute these bond trades, currency trades in IRA, preference to single broker that can provide it all? TD Ameritrade? IB? Pros/cons? Thanks in advance
    • BF
      Brad F.
      12 June 2020 @ 19:12
      I use IB, gives you all you need.
    • DR
      Derrick R.
      12 June 2020 @ 19:30
      Thank you Brad!
  • AA
    Andrew A.
    12 June 2020 @ 17:24
    So, I've bought Sept 2 year treasury futures (ZTU0 on SaxoBank) and 2 Year Sept call options (OZT/U20C) at 1 10'28 (because I couldn't see 1 10'5). Have I screwed up?
    • SS
      S S.
      12 June 2020 @ 17:31
      Yes, you screwed up. Its 110.16 on saxobank is equivalent to 110.5
    • AA
      Andrew A.
      12 June 2020 @ 17:45
      Thank you so much Steve. My order hadn't gone through so I was able to change it. Phew!
    • PS
      Parminder S.
      12 June 2020 @ 18:05
      I see ZT FP (OZT) Dec'20 110.5 call @ ECBO on interactive brokers, but RP said nothing later than September 20 available. Where am I fucking up?
    • WM
      Wolfgang M.
      12 June 2020 @ 18:47
      @Parminder: they seem to be in the IB system, but not live yet (there is no bid/ask or any previous trades)
    • PS
      Parminder S.
      12 June 2020 @ 18:48
      thanks Wolfgang - at least I know I have the right trade.
  • GP
    Geoff P.
    12 June 2020 @ 16:16
    Forgive me; you want to buy the 110.5 calls at 2.5 to 3 ticks with a target of zero which you say is 110.5 and an expectation to make 25 ticks? Did you mean buy 110.25, or did you mean zero is 110.75? or am I not understanding why you'd make 25 on the expectation of the underlying meeting the strike? thanks.
    • MH
      Michael H.
      12 June 2020 @ 16:46
      That confused me also
    • MS
      Mark S.
      12 June 2020 @ 16:48
      Thanks for writing this. I think Raoul misspoke and clarification would be great.
    • MJ
      Matthew J.
      12 June 2020 @ 17:37
      I would also love a little clarification here as 110.5 was said twice, as the strike and also the zero rate price. Additionally, just curious why you are looking to buy a straight call considering there is a limit on the negative rate? You've mentioned using a butterfly before or perhaps an iron condor around Zero to minus 25bps? How about a Bull spread as per the 5yr?
    • RP
      Raoul P. | Founder
      12 June 2020 @ 18:13
      Sorry, its 16/64ths not 25/64th... confusing bps and 64ths!
    • RP
      Raoul P. | Founder
      12 June 2020 @ 18:14
      Zero is 110.75
    • GP
      Geoff P.
      12 June 2020 @ 18:16
      Many thanks.
  • SS
    S S.
    12 June 2020 @ 16:19
    Hi Raoul, what do you think about 99.75 December20 ED Strikes? I know there's Libor involved, but time is on your side. Current price is 0.03 and the 99.875s are even cheaper at 0.015. Thank you for your update.
    • RP
      Raoul P. | Founder
      12 June 2020 @ 18:12
      Euribor didn't hit negative for a long time while 2 yr German bonds went negative so I just don't know. Otherwise, its roughly the same risk rewards but with a lower chance of working.
  • RM
    Randall M.
    12 June 2020 @ 18:05
    Here's an article explaining futures options and their pricing: https://tickertape.tdameritrade.com/trading/futures-options-trading-15000
  • DR
    Derrick R.
    12 June 2020 @ 17:14
    Thank you for the update and insights.
  • AS
    Amit S.
    12 June 2020 @ 16:11
    ZT is the code for 2 year T-note futures (using IB). ZTU0 is the Sep contract.
    • PS
      Parminder S.
      12 June 2020 @ 17:13
      Thanks! was just trying to figure that out!
  • PB
    Paolo B.
    12 June 2020 @ 17:03
    Will you post a pdf with the bond trade details?
    • DR
      Derrick R.
      12 June 2020 @ 17:13
      This would be fantastic
  • ly
    lena y.
    12 June 2020 @ 17:12
    Thx for bringing up the vaccine showman narrative. Too many people buy into that lullaby of vaccine available in six months!
  • SJ
    Sean J.
    12 June 2020 @ 16:39
    Now we just need Julian’s take.
  • JU
    John U.
    12 June 2020 @ 16:28
    Really enjoy these flash updates in video format. Thank you.
  • MD
    Michael D.
    12 June 2020 @ 16:23
    Excellent clarity in rationale and execution detail for this trade recommendation. Thank you so much Raoul and team!
  • SS
    S S.
    12 June 2020 @ 16:20
    Raoul, I don't have access to Bloomberg, what is the price on 2 years if negative 25bps is hit?