trade idea: the good ol' long US10y bond, long S&P500

[tsfx]

Hey,

Here's another trade idea.

Long SP500
Long US bonds

Not that Sp500 is particularly cheap but the combo is pretty attractive again. It's the monetary policy that will help this trade. If stocks continue to fall then it'll drag bonds up too which is were you can gradually go asymmetric by owning more stocks and less bonds.

 

[Robert Morse]

That is an interesting call from a trader in the EU. Not only are you betting on the equity market going up and 10 Year rates dropping or staying firm, but you are also betting on a strong USD vs Euro. If this is a large bet, do you hedge your currency risk?

Long SP500
Long US bonds

 

[maxinger]

Sooner or later or very much later, SP500 & US bonds will go up.

 

[tsfx]

So, that's a smart question b/c obviously i'm long usd with this trade. Now the easiest (and the laziest) way is yes, to short the dollar outright (against say the GBP which is low in value but has a similar yield so you get minimal negative carry) or just buy a usd put against eur or gbp.

I have a little more complicated approach since i already have a strategy for playing the dollar. So, in a sense, it looks like i'm assuming a strategy risk here for not directly hedging but in reality my approach makes more sense cause it's, well, more "cost effective".

Not only are you betting on the equity market going up and 10 Year rates dropping or staying firm

I'm not thinking like that b/c markets never play out in a rational way

I'm thinking that if i'm wrong then this combo trade becomes more and more attractive. If stocks fall then it'll probably start dragging the bonds EVENTUALLY which will help cover my stock losses. Should stocks rise i'll see what the bonds will do and react accordingly. It might even happen that both will be flattish so technically just selling a year out put on SP500 instead of just buying the underlying isn't a bad idea at all, as well.

 

[tsfx]

View attachment 326434

Sooner or later or very much later, SP500 & US bonds will go up.

Soooo, that picture refers to what exactly? That i'm catching a falling knife with this trade?

 

[mervyn]

buying call options on zn is a reasonable trade, buying underlying bond, not much.

 

[tsfx]

buying call options on zn is a reasonable trade, buying underlying bond, not much.

Long options as a direction without a clear volatility strategy ia never better than trading the underlying alone.

 

[mervyn]

Long options as a direction without a clear volatility strategy ia never better than trading the underlying alone.

you make money on directional trades, peanuts if hedge.

 

[zghorner]

you make money on directional trades, peanuts if hedge.

directional price is third in line behind vol and time imho.

 

[mervyn]

directional price is third in line behind vol and time imho.

true but we are talking about underlying 10 year bond auction, you pay at par and collecting 5% interest, not very exciting.