Great time to sell straddles on the 2Year

[MGJ]

Hypothesis: implied volatility has over-reacted to debt ceiling political badminton.

Trade: sell volatility; in this case, sell straddles on 2-Year Treasury Note futures options

Winning result: after the political deal is cut, IV returns to normal, and you repurchase the straddle for Much Less than you sold it. Profit!

Losing result: IV goes higher and stays higher, for a longer time than you can tolerate the pain. Repurchase at a loss.

 

[Martinghoul]

Ahem, and if, god forbid, the debt ceiling shenanigans result in a missed coupon, have you considered what that means for the 2yr note?

I'd be very careful suggesting trades like this if I were you...

 

[MGJ]

Relax, there are options-on-futures traders, and there are newbie traders, but there are no newbie options-on-futures traders.

Those concerned about an ENORMOUS PAINFUL PRICE SHOCK could trade off profit potential in exchange for safety, by selling butterflies or condors instead of straddles. Buy they/you knew that already. Sell a put credit spread (sell ATM, buy OTM) and also sell a call credit spread (sell ATM, buy OTM).

 

[Martinghoul]

I am very relaxed, my friend... I just don't quite understand what you wanna do? Can you be more specific about what particular fly/condor you wanna do? What expiry, what strikes, etc? Personally, I don't see why 2y vol as all that special arnd here, so don't see anything special to do.

 

[zdreg]

Quote from MGJ:

Relax, there are options-on-futures traders, and there are newbie traders, but there are no newbie options-on-futures traders.
Those concerned about an ENORMOUS PAINFUL PRICE SHOCK could trade off profit potential in exchange for safety, by selling butterflies or condors instead of straddles. Buy they/you knew that already. Sell a put credit spread (sell ATM, buy OTM) and also sell a call credit spread (sell ATM, buy OTM).

are you in the insurance business?
if not try not to outsmart the market makers on the floor when it comes to hedging your trading positions.

 

[Martinghoul]

Someone seems to like what you're cooking, MGJ... 20 bags of Sep 10y note 124 straddles sold last night, quite aggressively.