July 19, 2016
To the point…
I hate to make this sort of statement…and it absolutely does NOT mean I will be right…but the more I have examined this Eurodollar trade (again, this is NOT the Eurocurrency), the more I have come to believe this is the best trade I have ever seen in my 36 years of futures trading.
I think short term rates will absolutely be going up AT LEAST 1.00 - 1.25% between now and next June. If this does happen, this means the June, 2017 Eurodollar contract WILL trade down to, AT LEAST, the 98.00 level.
I think that having 11 months to see that happen is a TON OF TIME.
I think that paying 13 ticks for the June, 2017 Eurodollar 99.00 puts is dirt, dirt cheap…especially when you consider that we are just 9 ticks away from the 99.00 mark…In other words, we are so close to 99.00 that these puts could be in the money within a matter of days (or, not, of course)…and then be well on their way to becoming the equivalent of futures contracts…will almost a year left to trade.
Here is the shorter term picture…We have had two “fear” events this year (Chinese Stock Market in January & the Brexit nonsense) that moved Eurodollars back up to their highs (towards the idea of rates staying low)…BUT, if a 3000 point rally in the Dow since the January lows, AND NEW ALL TIME HIGHS, are any indicator at all, the media and brokerage house anxiety generated by those events was bogus…In the same vein, I would also note that all the SUPPOSED worries about the US economy being on shaky footing are being contradicted week by week as various economic statistics keep coming out “better than analysts expected” (what a surprise)…I will keep saying it: The economy is TAKING OFF. If you can’t see it, you do not have your eyes open to what is happening at the malls, on the roads, at the airports, in the vehicle industry, in the technology industry, in the construction industry…and really, just about anywhere you want to look…Tell me…please!…WHERE IS THE WEAKNESS THAT THE YAKHEADS KEEPING TALKING ABOUT?
THE ECONOMY IS STRENGTHENING. THERE IS NO REASON FOR RATES TO STAY THIS LOW…BOTH SHORT TERM AND LONG TERM INTEREST RATES ARE GOING UP…AND I BELIEVE THEY ARE GOING TO GO UP MUCH FASTER THAN ALL THE BOOBS COULD EVER IMAGINE.
And here is a chart of the actual Eurodollar 90 Day Interest Rate…
If you think any of this makes sense, I cannot emphasize how important I believe it is to do something with it now…
Pick up the phone. GET 20…If this market does start “trending” lower…With 20, you are talking about $500 per tick as they move deeper and deeper in the money…
And again, just to be clear, if Eurodollars DO stay up here until next June, you could lose every dime you have on the table.
Best regards to you all,
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars and Treasury Bonds