Bond rally nearing an end?

Market began to sell-off on rumors of a very strong Philly Fed this morning (was rumored by New York to be around 11.0). Of course that didn't come to fruition. Either way the 10yr traded nearly 2 million contracts from 108-02 to 107-30 over the past week leading into today. Obviously a large amount of retail stops built up below that support level and were easily taken out today. All week there has been talk of heavy MBS selling by dealers and commercial banks. Adding to that there is still heavy corporate supply into next week. Just way too much paper out there at the yearly lows in yields. Needed a little backup to accomodate it. Goldman also short 50,000+ at the 108 strike (Jan, Feb, March straddles) in the 10yr leaves us perpetually trading back to 108-00 from both directions.
 
Quote from mcurto:

Market began to sell-off on rumors of a very strong Philly Fed this morning (was rumored by New York to be around 11.0). Of course that didn't come to fruition. Either way the 10yr traded nearly 2 million contracts from 108-02 to 107-30 over the past week leading into today. Obviously a large amount of retail stops built up below that support level and were easily taken out today. All week there has been talk of heavy MBS selling by dealers and commercial banks. Adding to that there is still heavy corporate supply into next week. Just way too much paper out there at the yearly lows in yields. Needed a little backup to accomodate it. Goldman also short 50,000+ at the 108 strike (Jan, Feb, March straddles) in the 10yr leaves us perpetually trading back to 108-00 from both directions.
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Interesting info. Do you have a source of this type of information you could post?

Thanks,
Mike
 
This is info I gathered by myself throughout the day. I am located on the floor of the Chicago Board of Trade in the financial room. Pretty good flows from the 10yr options and various other brokers I talk to throughout the day with different connections to dealer desks.
 
Quote from mcurto:

This is info I gathered by myself throughout the day. I am located on the floor of the Chicago Board of Trade in the financial room. Pretty good flows from the 10yr options and various other brokers I talk to throughout the day with different connections to dealer desks.
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as a floor trader, maybe you can explain how this works --- how does a bank having a large amount of outstanding options push the market towards that strike? The bond markets are large, and I would imagine these things can't be manipulated to the favor of one player, even though its big..

Any ideas on techniques these traders use to keep the price close to a strike (or away from it), without of course losing their ass? I would imagine a massive surge of contract buying to push a security in a desirable direction would have higher risk of loss in comparison to just losing on their option sales.
 
Quote from scriabinop23:

as a floor trader, maybe you can explain how this works --- how does a bank having a large amount of outstanding options push the market towards that strike? The bond markets are large, and I would imagine these things can't be manipulated to the favor of one player, even though its big..

Any ideas on techniques these traders use to keep the price close to a strike (or away from it), without of course losing their ass? I would imagine a massive surge of contract buying to push a security in a desirable direction would have higher risk of loss in comparison to just losing on their option sales.
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Hedges upon hedges....they are concerned about their portfolio in aggregate...giant set of stones, unlimited market info and massive credit lines don't hurt, either. Have a look at this:

Goldman's notional exposure to derivatives alone is more
than $1 trillion, though only $58 billion netting out all of its
positions. JPMorgan Chase (nyse: JPM - news - people ), a
far bigger player in the interest-rate derivatives market, with
$47 trillion in notional exposure in the third quarter, nets out
to $26 billion in exposure, by comparison.
 
Quote from Il Principe:

Hedges upon hedges....they are concerned about their portfolio in aggregate...giant set of stones, unlimited market info and massive credit lines don't hurt, either. Have a look at this:

Goldman's notional exposure to derivatives alone is more
than $1 trillion, though only $58 billion netting out all of its
positions. JPMorgan Chase (nyse: JPM - news - people ), a
far bigger player in the interest-rate derivatives market, with
$47 trillion in notional exposure in the third quarter, nets out
to $26 billion in exposure, by comparison.
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No doubt they are large and have buying power, but that doesn't satisfy my curiousity of how pinning a security to a strike can actually be accomplished.

Even if they have the money and buying power: If it costs more to achieve the pin, then whats the point of doing it?

So the question is this - how can a pin be accomplished without losing (or losing less than sold straddles not being protected) ?
 
They don't protect their position. If need be they roll it into a different position or buy back month straddles against their short front-month position. In the end, they understand how to use their knowledge of customer flows and let the market pin itself to that strike.
 
Quote from mcurto:

They don't protect their position. If need be they roll it into a different position or buy back month straddles against their short front-month position. In the end, they understand how to use their knowledge of customer flows and let the market pin itself to that strike.
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If I recall correctly, last month on expiration date, Oct 20, QQQQ amazingly closed right at 42.00, and that "happen to be" the strike with highest OI. Dont know how, but they CAN do it. have seen that many times, it actually becomes a trading strategy.
 
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