October 14, 2021
Interest Rates ARE moving…
I strongly recommend
BUYING EURODOLLAR PUTS NOW
While all the pundits debate if and when rates will be going up, and what the Fed will or won’t do?....In the futures markets INTEREST RATES ARE ALREADY HEADING HIGHER.
The Eurodollar market shown below (which again, is not the Eurocurrency and actually has nothing to do with Europe) reflects the London Interbank Offered Rate, or LIBOR, which is THE international standard for short term interest rates…And just to remind you, Eurodollar Futures go DOWN when interest rates are going up.
So…I find it highly significant that during the past few weeks, SEPTEMBER 2022 EURODOLLARS HAVE STARTED MOVING SOMEWHAT SHARPLY LOWER…AND IN FACT, THIS CONTRACT IS NOW LOWER THAN IT HAS BEEN SINCE JUNE, 2020.
In my opinion, this is NOT just incidental movement and I DO think that making new 16 month lows IS indicating that the move towards higher rates is already underway…In other words, the FUTURES market already “knows” what the talking heads…and Fed governors…don’t.
As I have written forever, the Eurodollar contract, which by itself has more participation than all of the other futures markets in the world combined, has for decades LED the Federal Reserve Board…and not the other way around. More plainly stated, the MASSIVE Eurodollar market, which is influenced purely by GLOBAL supply and demand for short term loans…and not really by what ANY Fed governor might think or say…has a decided tendency to move interest rates LONG before the Fed “officially” does so.
So to be clear: My long held observation has been that: The Eurodollar market moves…and THEN the Fed follows…and that is precisely what I believe is happening now…that Eurodollar Futures HAVE started their move down, and that it is highly possible that within the next year, they will reach AT LEAST the 1.25% level, meaning a trade down to 98.75 in the September 2022 Eurodollar contract.
Here is the put option I am buying at current…RIGHT NOW…levels…
Here’s more of a close up look at the recent action…
The mathematical bottom line is this:
If you buy these options, and 11 months from now we are still at or above 99.50, you will lose 100% of your investment.
If, at any time in the next 11 months, Sept gets to 99.25, this $283 option will be worth at least $625.
If, at any time in the next 11 months, Sept gets to 99.00, this $283 option will be worth at least $1250.
If, at any time in the next 11 months, Sept gets to 98.75, this $283 option will be worth at least $1875.
I think this is a great bet. Period.
If you think it makes sense, I urge you to NOT just watch this happen…I think it HAS already started…that moving down 15 points in the last 8 trading days (off zero news) DOES mean something…So, spend the money, for almost a year of time…and then forget you’re in this for a while…until around early 2022. And who knows? Maybe at that point, we’ll be able to take some profits off the table…and still keep a strong position…Or just sit tight on everything…Again, who knows? But to be making those decisions, you first do have to be there.
Call me if you’re ready.
All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars