Comments
Transcript
-
gbI don't believe this trade is on the table any longer
-
JLETrade and TD Ameritrade both charge a $6.95 base fee + $0.75 or $0.50 (depending on the #of trades made in a certain period). https://us.etrade.com/what-we-offer/pricing-and-rates and https://www.tdameritrade.com/pricing.page I'd go with US based TastyTrade (https://www.tastyworks.com/pricing.html) who charge $2.50. Closing the trade costs $0.00 (in the case of writing options, this allows for cheaply buying back tail risk). Their TastyWorks platform is well thought-out and option-centric. Hope this works for you, good luck!
-
SSWhy would you have a strike of 99 and not 98.5-98.625
-
KLCan anyone recommend the easiest online platform to do this trade? Preferably with knowledgeable customer support. I was considering E Trade.
-
EAI don't understand this trade if you are betting on a crisis. LIBOR tracks the FFR when things are calm, but they diverged a lot during the GFC. Why wouldn't they do so again? Or are you just planning to hold through all the volatility?
-
IDAnyone have analysis to share on trading the ED vs the 2 year (a point I've found is the ED can diverge greatly from the fed funds, as it did in GFC), and also on the futures outright vs options? Also on trading the long end vs the short end, as the long end has moved so much more so far?
-
HvHi Folks, Does anyone know of a Canadian Brokerage with whom I can place this trade? I’m in B.C. (western Canada.) Thanks in advance! Hannah
-
JOI'm still missing something. Is LIBOR going to crash more than other bond yields? Every time I look at the moves in Eurodollar futures, they are very modest moves and much smaller than the equivalent moves in Treasury bonds or Zeroes in the same periods. So there must be something more: is it an expected critical shortage of offshore USD; is it that /GE futures are cheaper and you can buy more of them at the same delta; or is it some technical play involving buying the forward strips? I've added Eurodollar futures to my IB account, but see more juice in options on Treasury Bond /ZB futures that I can already trade on better platforms.
-
TRI can't find an ETF or even a certificate to go long these eurodollar futures. Is There anything with an ISIN?
-
JDTHIS IS EXACTLY HOW TO DO THE TRADE: You want to buy CALLs on /GEZ19 Safe trade: Strike price 98.5 with around 400 days till expiration (costs about $500 per contract) Risk-on trade: Strike price 98.75 with around 320 days till expiration (costs around $350 per contract) You could buy less time, if you know how to trade in and out on the way up...extra risky, but more profitable. Get in ASAP, and close the trade when the FED funds rate = 0 These option prices move fast, and you want a good entry point. Today is a good day to get in. Remember these options cut-both-ways. Big gains on up days. Savage losses on down days. Don't freak out, and don't get greedy. This is a great trade. I expect to make 10X this year. I recommend Tastyworks for trading options, they make it super easy, but any brokerage can do this trade. (Maybe not Robinhood) You need futures trading permission to do this trade. It is separate from margin and options trading permission. You can't even buy CALLs on futures without getting permission. Call your broker and they will help you find the online "enable futures" button / process. Go to younghustler.com for more information on how options work, and videos on how to set up an account with Tastyworks. Godspeed.
-
JHgreat video, thx guys
-
HMAnd what if the spread between 3ML and EFFR goes up?
-
MFHe is wrong on his analysis, Interest Rates are not going to zero. They will break out in 2020 / 2021
-
SSFor Eurodollar call options, What Month, Dec 2020 or Dec 21 and what strike price is recommended by the pros such as John Burbank and Raoul
-
PCDisagree with trade setup. Implied vol is not being considered appropriately. EDZ0 call 99 strike is trading at IVB 56 (~13 delta). Same delta puts are trading @ 25 IVB. Skew is v rich. Relative to historical, 56 IV is pricing 3.5% daily vol which normalized gives you about the ~3.44. Yes, implied typically trades fat v realised but this is extreme. See linked pictures for visualisations: https://i.imgur.com/HOW5GF1.gif https://i.imgur.com/bmSNsXF.gif
-
SGthis guys videos are terrible... like if TMZ tried to make financial content.
-
SSThanks A.K. Very helpful 👍
-
YLMinimum contract size for a Eurodollar contact is $244K.....what about us retail investors? What can we do here to express the trade idea???
-
JBAha. Another piece of the jigsaw falls into place
-
DSWell done AK. Many subscribers asked to see the Eurodollar trade and you showed it to them. You also gave them all the appropriate caveats to let investors know that this is deep end of the pool. DLS
AK: It's not every day that you get a hedge fund legend like John Burbank telling you how he's about to make a bunch of money. But that's exactly what he did with Real Vision when he sat down for an hour-long interview where he discussed his highest conviction trade right now. And some of you, after watching that, wanted to know more like, what's the vehicle that he's using to put that trade on? And how you can do the same thing? And also what is a euro/dollar anyway? So we're going to go over all that and more in this week's episode of Real Vision's The One Thing.
What's going on, investors? AK here. Every big trade starts out with the assumption that somebody else is wrong. Because if everybody was right, then the markets would be efficient, and you throw your money into an index fund and just walk away. So what does Burbank think that people are getting wrong? He says that interest rates are going to go way lower than everyone's expecting.
JOHN BURBANK: Them rates market generally is saying most of the rate cuts are going to happen by June, in the next year. But I think the ending rate is way too low. There're not enough people who believe this. Although it's only been the last couple months that the exposure to euro/dollars is positive. There's really no reason to believe in lower rates in a hiking cycle. And it was only until the middle of last year, people are believing higher rates. So this is a huge shift in forward expectations as evidenced by rates markets.
And the question is, is it going to go all the way to zero or not? And if you remember, 2000, or 2007 or 2008, you just don't say, oh, yeah, it's at zero. No, it's like a day by day, month by month valuation process until you get to a bottom and usually, the bottom is way farther than anyone expected.
AK: So basically, Burbank thinks that the Fed will do more cuts and quicker than what people are expecting. And to bet on it, he's using euro/dollar futures. Euro/dollars track the prevailing interest rate on US dollars outside of the US banking system. It's a rate that you might know better as Libor. And while euro/dollars might not be a household name, they're the most widely traded futures contract on the CME. Listen to euro/dollar expert Jeff Snyder talk about it.
JEFF SNYDER: Well, euro/dollar futures pertain to future expectations for where 3-Month Libor will be. Libor is a London interbank offered rate, which applies to claims on dollars that will be on some bank account balance sheet at some point in the future. So the price of a euro dollar future tells us what the market expects 3-Month Libor to be at that point in the future.
And so, it tells us a little bit something about how the market perceives not just current conditions, but what the Federal Reserve thinks about current conditions. Because remember, monetary policy, especially at the very short end, has a very large effect on to where short money rates are going to be in the future. So it's a combination of very key factors that tells us a lot about current perceptions of the intermediate and even the longer term future.
AK: So in other words, the economy doesn't actually have to fall into a recession, the Fed just has to be afraid that it might fall into a recession. Burbank compares it to betting on the price of a stock versus betting on a company's actual earnings.
JOHN BURBANK: What I like about betting with the euro/dollars and betting on Fed Futures is that we're betting on where the actual policy rate is going to settle. It's really it's like betting on the earnings, like nailing the earnings of an equity, but not having to worry about the multiple.
AK: And in this case, Burbank says that the Fed could get spooked and drive interest rates down to zero very fast.
JOHN BURBANK: I think they're going to go to zero pretty fast. In fact, that would be the choice. They'd get there as fast as possible and then discuss, negative rates or some other rate targeting or whatever. So, it's one of those things like they either do have to do this stuff, or they don't. And if they do, I think they'd go to zero, which case the betting on zero scenario, you can make real serious returns. And obviously, the sooner it happens, the better.
AK: Okay, so let's say you agree with Burbank, how do you actually put on the trade? While the trade might look complicated, it's actually pretty simple. Euro/dollar futures are priced at 100 minus the implied interest rate for the expiration date, December 2020, futures are currently around 98.40. That means that the market expects the 3-Month Libor to be 1.6% when the future is set. You can buy the futures outright meaning you expect the price to rise and the forward interest rate default.
Or if you want to hedge your risk and increase your returns even more, you could buy calls on these futures, which is what Burbank talks about. Remember, a call gives you the right to buy an underlying asset in a certain time period. So in this case, you can buy the 99 strike calls on the 2020 December futures. These will start to make money once the futures rise above 99, or in other words, when the expected interest rate falls below 1%.
But because you paid for that option, the price of the futures have to rise above that strike price by more than what you paid for you to make a profit. And where it gets interesting is when you think about position sizing because these aren't going to be a normal part of your portfolio. So you can't use standard asset allocation. In this case, Burbank says you want to go big.
JOHN BURBANK: And then the question is, well, how levered up are you? How confident is that? Usually, they were talking about like getting a 20% or 30% return in a really good scenario. And I'm talking about getting a 10 X return in a scenario. And so in a way, I'm like bringing like a risk seeking mindset to this trade for a lot of people who aren't used to having this maybe optionality or aren't seeking this kind of risk. I now can understand why Druckenmiller could have made so much money in these times, a risk seeking mentality in an incredibly liquid leveragable area. I get it, I get that now.
AK: With the potential for such massive returns, it's no wonder that this is his highest conviction trade. But remember, these are all just ideas. This is not financial advice. Options, and especially, options on futures are not for everybody. If you want to follow John into this trade, then make sure you do your own research first. That way you know what you're getting into. And a great place to start your research is with all our interviews with John Burbank and you could watch them on Real Vision. I'll see you next week.