A Synthetic Trade: U.S. Dollar, Treasuries and the S&P 500

Published on
March 12th, 2019
13 minutes

A Synthetic Trade: U.S. Dollar, Treasuries and the S&P 500

Trade Ideas ·
Featuring John Netto

Published on: March 12th, 2019 • Duration: 13 minutes

John Netto, author of "The Global Macro Edge," returns to Real Vision for a short-term "synthetic" trade on the U.S. dollar, Treasuries, and the S&P 500. He notes the key catalysts to the thesis, reviews risks to watch out for, and suggests three call spreads to use in order to make the play, in this interview with Brian Price. Filmed on March 11, 2019.


  • JN
    John N. | Contributor
    29 March 2019 @ 19:09
    DXY futures trading at 96.84. This trade lost about 25-30 percent of its value depending where you got into the call spread. But net/net a very successful structure to be long SPX call spread, long TY call spread, and long Dollar index call spread.
  • JN
    John N. | Contributor
    22 March 2019 @ 12:22
    TYA Trading at 123-29 so about 93 percent of the profit is captured on that part of the trade with one week to go. Time to close this leg of the trade as well and book profits. This leg of the trade is profitable so now there is only one leg left. The long DXY leg.
  • JN
    John N. | Contributor
    20 March 2019 @ 18:22
    ES futures trading at 2841.50. Time to close that leg of this trade. MBS roll into treasuries will help 10 year part of this trade.
  • NR
    Nelson R.
    16 March 2019 @ 15:31
    John your proposed trade is long volatility through treasuries and the dollar, long fixed income through treasuries and long credit through stocks. All of those are the components of credit fixed income. You can simplify your structure and reduce cost by simply going long U.S corporate credit (LQD would do the trick). Basically what you are proposing is to be long credit fixed income at this stage (I agree). Happy to go over this with you privately. Cheers to you and Brian for another great interview.
    • JN
      John N. | Contributor
      18 March 2019 @ 13:58
      Thank you, Nelson. Great synopsis of the trade. I wasn't even aware that LQD was an ETF so this is very instructive. Feel free to DM me on twitter or at info@theproteantrader.com if you would be so kind. All the best
  • RS
    Robert S.
    17 March 2019 @ 02:30
    Hi John: does DXY have options?
    • JN
      John N. | Contributor
      18 March 2019 @ 13:57
      The DXY futures, exchange symbol DX, have options that trade on ICE. Thank you for your comment.
  • JM
    Jay M.
    14 March 2019 @ 23:32
    Outstanding! Unfortunately I missed this, as I hardly watch the trade ideas (technical analysis, low quality). THIS was SMART! I immediately went to Amazon and will purchase both of John's books. Very thankful for RV for bringing him on. Fast talking, fast thinking, smart trading, starts with the risks to the trade, has a macro understanding: I like it all! Semper Fi Sir! One shot, one kill! HUAA!
    • JN
      John N. | Contributor
      15 March 2019 @ 19:08
      Thank you for the kind words, Jay. Please share any feedback from the books.
  • JN
    John N. | Contributor
    14 March 2019 @ 13:11
    i have received requests for a free sample of The Global Macro Edge. Please send emails to info@theproteantrader.com
  • JW
    Jason W.
    13 March 2019 @ 12:53
    Brian Price is a flawless interviewer !!
    • BP
      Brian P. | Real Vision
      13 March 2019 @ 14:35
      Far from flawless, but you're too kind! And a lot of very smart people help me. Thanks so much, Jason.
  • BH
    Bin H.
    12 March 2019 @ 18:10
    What is the thesis for strong dollar given Fed might stop hiking?
    • SW
      Sebastian W.
      12 March 2019 @ 22:22
      Probably because despite the fact that the market is already pricing no more hikes this year and starts pricing in almost a 25% chance of a rate cut at the beginning of 2020, the USD is still relatively strong. Most likely because of outperformance of the US comparing to rest of the world (dollar smile theory).
    • RP
      Ryan P.
      13 March 2019 @ 00:17
      * is done hiking
    • JC
      John C.
      13 March 2019 @ 12:49
      US economy still fairly strong compared to the EU plus ECB now going back to QE and not hiking rates
  • ID
    IGOR D.
    12 March 2019 @ 20:21
    Very insightful and helpful in a way to think about trade structuring.
  • Nv
    Nick v.
    12 March 2019 @ 12:37
    Interesting. However, The Dollar has a lower yield than EU / Japan yields once a non-US investors hedges FX. The high hedging cost is due to relatively high US short rates.
    • JN
      John N. | Contributor
      12 March 2019 @ 13:27
      Great point, Nick. This could have been more clearly explained on my part. I see global money managers migrating assets to the US in this regime and at its core is what this trade represents, i..e a continued strength in US Equities, stable returns from Fixed income, and a stronger dollar index. I'm looking for a combination of those to create a solid Netto Number.
  • FG
    Flavio G.
    12 March 2019 @ 12:23
    What is so new about this "synthetic" trade? I mean, it is classic portfolio theory, right?
    • JN
      John N. | Contributor
      12 March 2019 @ 13:22
      Great point, Flavio. The synthetic component is a reference to the aggregation and indexing of this trade construction into one data point in the same way someone would track a long SPX and short NDX position. There is no formal tracking of that structure so it must be tracked synthetically. Chapter 13 of The Global Macro Edge goes into more detail on spread trading. The absence of a formal short position, although the long DXY is effectively a short EURO trade in this structure, does give the appearance of a portfolio feel. Thank you for your comment.