November 8, 2021
Still Strongly Recommend Buying Eurodollar Puts
Part of trading is measuring or estimating probabilities…And per the 30 years of statistical research below, I believe that the odds for success in betting on higher interest rates, and specifically owning Eurodollar Puts, are possibly better than anything I have ever recommended in this business…and I do not exaggerate…I mean it…Better than ANYTHING.
This absolutely does NOT mean that this idea will be a winner, and does not mean that you can’t lose every dollar you invest in it, but again, per my observations of every June Eurodollar contract traded for the past 30 years, I very much like my chances…And for anyone who just skims through all the charts below, I honestly don’t see how they could see it any differently.
I’ll start with this…The Present…and the recent “SELL” signal generated by the mechanical moving average trading system that I developed 25 years ago…and as I have previously noted, quite stupidly have not used since a single failed attempt at marketing and trading it back in 1996.
Okay…so maybe this will all seem like technical gobbledygook to you…But, like I said, if you skim through the charts that follow, of this moving average approach applied to every June Eurodollar contract for the past 30 years, I think you will easily understand the potential significance of the recent sell signal noted above.
Several things to observe…
Each chart includes the entire contract history for that contract, generally beginning about 2 ½ years before expiration.
The system starts with either a buy or sell signal at the end of the first week’s trade, and stays that way until the next signal is generated.
Aside from demonstrating that the system WILL catch any long term trend…and yes there can be some BIG retracements within those trends…what I really want to show you is how FEW signals there are during the life of each contract…which, beyond that initial automatic buy or sell as each contract starts, averages out to about ONE SIGNAL PER CALENDAR YEAR, thereby mathematically suggesting that ANY buy or sell signal has a HIGH probability of indicating that a major move might be starting.
See for yourself…And no need to dwell for long on any chart here really…I think just flipping through them presents some very obvious conclusions…
EVERY JUNE EURODOLLAR CONTRACT FOR THE PAST 30 YEARS
So again, the intent here is not to show how hypothetically profitable many of the signals were…It’s to emphasize that they are relatively “rare,” and therefore, from a purely statistical standpoint, should certainly NOT be ignored.
Going back to the present…Here’s where the system is right now…
One more time…Here is the rate that this is based on…also known as LIBOR…And when this goes up, Eurodollars go DOWN.
As I am forever preaching, if you think this makes sense…if you think it is a good bet…Spend the money and then start by forgetting you own the puts for 2-3 months.
I SEE LAST WEEK’S RALLY, PERHAPS CONCURRENT WITH THE FED SAYING THE ARE STILL WAITING TO MOVE ON RATES, AS AN EXCELLENT OPPORTUNITY TO GET SHORT…OR ADD TO EXISTING POSITIONS.
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