Who are the idiots buying bonds for 1% interest?

[tradingjournals]

Quote from Martinghoul:



Secondly, tj, your commentary here is almost entirely unadulterated nonsense. You really shouldn't talk about things you don't understand with such aplomb and authority.

My Z$2c.

Martin: What is it that I talked about that I do not understand? I accept critique. It would be good to see proof. I never write something I do not think I do not understand. Every statement I make, I can prove it.

If one buys 10s, and sells 2's, what one is doing is buying the cash flow of years 3 to 10. You discount that to now, and you get the price of your bond spread. The maths of bonds are trivial maths.

A more general way to think of bonds trading/priving is to think in terms of cash flows. If I denote C[A, B] as the cash flow between year A and B, then a bond is a special case where A is now (zero) and B is the maturity of the bond.

C[A,B]=C[0,B]-C[0,A]. So the spread of B and A is simply the cash flow A to B. Take A as 2, and B as 10, and you have an example.

The point is that a spread trader is a speculator in the same way a long bong trader is. If someone things he is safer with a spread, the above algebraic terms should dispel such misconception.

The only "disadvantage" I see to a short side of a cash flow trader is that the trader has to pay the carry, while waiting (if he waits).

I shorted the 10s, then moved to the 2s, and made money in both. Someone paid me, so I must be right. That is what matters.

I still think that Big D is an excellent thinker. It is my opinion based on facts. I moved to 2's because of his observation in relation to expiration. I think he is right. The chart/proved him right.

You state that Bone is right. He is right about what exactly? I want to see him right about something. but I need to have evidence. Hindsight statements are not evidence.

Bottom line is this: timing is king in trading.

Remark: to sift the tire hitters, I have a question to those who trade bonds with IB. When you open a position in the bond futures, there is an alert message that comes out. What does it say?

Now, we shall see how many posters around here trade bonds with IB. Those who know the message may understand its other relation to this thread.

 

[Martinghoul]

Quote from tradingjournals:

If one buys 10s, and sells 2's, what one is doing is buying the cash flow of years 3 to 10. You discount that to now, and you get the price of your bond spread. The maths of bonds are trivial maths.

A more general way to think of bonds trading/priving is to think in terms of cash flows. If I denote C[A, B] as the cash flow between year A and B, then a bond is a special case where A is now (zero) and B is the maturity of the bond.

C[A,B]=C[0,B]-C[0,A]. So the spread of B and A is simply the cash flow A to B. Take A as 2, and B as 10, and you have an example.

Well, this is exactly my point, tj. What you're describing is emphatically NOT the duration-neutral 2s10s spread, but rather a 2y forward 8y cash-for-cash forward. 2s10s spread is where you buy/sell roughly X notional of 2yr bonds vs selling/buying X/5 (roughly) notional of 10yr bonds. Even if the two issues have the same coupon, the cashflows of the 2s10s spread do NOT look like C[A,B], using your notation.

The main, rather obvious point here is that a trade that is defined by discounted cashfows C[A,B] cannot possibly be duration-neutral, which is the defining characteristic of a spread. Someone like yourself, who thinks bond maths are trivial, should know this.

The point is that a spread trader is a speculator in the same way a long bong trader is. If someone things he is safer with a spread, the above algebraic terms should dispel such misconception.

This is, obviously, wrong, as well. A spread trade is emphatically different to an outright long or short.

The only "disadvantage" I see to a short side of a cash flow trader is that the trader has to pay the carry, while waiting (if he waits).

Do you know what "carry" actually means for a bond?

I shorted the 10s, then moved to the 2s, and made money in both. Someone paid me, so I must be right. That is what matters.

I have absolutely no idea what you mean by the above.

I still think that Big D is an excellent thinker. It is my opinion based on facts. I moved to 2's because of his observation in relation to expiration. I think he is right. The chart/proved him right.

I have no comment on the excellence of Big D's thinking. Moreover, saying "this is my opinion based on facts" is sorta silly, don't you think? Big D's observation in relation to the expiration of the contract is incorrect, even if you think he is right. I am curious what chart proved him right?

You state that Bone is right. He is right about what exactly? I want to see him right about something. but I need to have evidence. Hindsight statements are not evidence.

Firstly, I never said that bone is right or wrong. It's silliness to argue whether a mkt view is right or wrong. What I am saying is that bone thinks the way FI traders think. Moreover, aren't you engaging in a lot of this hindsight stuff yourself?

Bottom line is this: timing is king in trading.

What does this have to do with anything?

Another thing, I am intensely curious to hear what you meant with your comment about bone's options trade. 'Cause, again, no offense, but I think you have as much understanding of options as you have of bonds. Yet you speak with such authority and arrogance. That makes me very upset.

 

[bone]

TJ: In case your cryptic IB reference deals with delivery, my FCM makes and takes delivery unlike IB.

First Position report on the Sept. contract is Monday the 30th, and First Notice is Tuesday August 31st. The spread isn't a ratio it's 1:1 - point being the long call/short call offsets are identical, I pocket the difference in the strikes less premium paid and the position disappears off the statement. Net I am assigned no position - it's a wash. By design I don't want to offset the position if I can help it for slippage considerations.

The short Dec. 130 call position remains on the statement.

 

[Martinghoul]

If your options were onto the Sep10 2yr note contract, they should have expired this Friday. Given that these are physically-settled, you might now be long some Sep contracts.

 

[bone]

Nah, they were Tens both strikes deep ITM with identical quantities long/short calls. Apparently an FCM is allowed to net positions out and provide instructions to Clearing Corp before automatic assignments take place. This FCM clears alot of market-making business.

Arrangements were made.

 

[Martinghoul]

Quote from bone:
Nah, they were Tens both strikes deep ITM with identical quantities long/short calls. Apparently an FCM is allowed to net positions out and provide instructions to Clearing Corp before automatic assignments take place. This FCM clears alot of market-making business.

Arrangements were made.

Yeah, of course, my bad... I forgot the details of the trade. You not tempted to cover your short 130 calls here?

 

[bone]

Holy Cow, batman, he's reading my mind.

I want to cover half in here - I'm so nervous about that trendline that I'm going to buy like 3 futures at Sunday night's electronic open and not wait to work a bid on the Dec 130 calls at Monday's pit open.

I like a quality sleep.

 

[bone]

I would be alot more bearish with a couple daily closes around 123-15 or 124. Enough to invest in a bear put spread.

 

[bone]

Dec Twos to Tens

Price Ratio of 3.3332 accounts for the larger notional size of the 2-Year contract. The traded leg quantity ratio is 5:3. I didn't correct the scale for tic sizing but otherwise you get the point.

If you like the exchange supported implied spreads as much as I do, the CME symbology is TUT 05-03 Z0. Remember, a one-lot in the order book is actually traded as ten contracts for the lowest maturity - if you buy a one-lot your fill window will show long 10 Twos and short 6 Tens.

 

[tradingjournals]

What is great in trading is that time decides on who is wrong and who is right. When ZN futures were in the 126 range, bulls were so confident. What is amazing is that they were bullish at the TOP (despite the warning that it might be the top which they found a ridiculous proposition) !

Now ZN is at 124'25. I think it is time to take profits. More than 1% profits in about 2 week for an income instrument that gives 0.1% in two weeks for the long side, but which is showing more than 1% in capital loss for those who entered at the top. Ugly risk reward for an income instrument.

Big D and myself were among the very few who were bearish at the top, and we have been right.

Read the thread to see how the bulls got it wrong. They thought they were right because at the top they could use the past to justify their bullishness and feel confident about their views.

It is the future chart that matters, not the past chart.

Time determines on who is the expert, and who is the non expert.