Is the Apocalypse Upon Us?
Is the Apocalypse Upon Us?
Go away on vacation and look what happens. The Treasuries make an all time high (or low yield) because the USA missed the jobs number. Wow, is that all? Maybe the weight of slow job growth, collapsing major currency, Asian slowdown, our own fiscal cliff, and the ensuing slowdown next year finally put a nail in the coffin. I know during the Depression bonds traded at very low yields, but the USA is not in a Depression, not yet. Either way, as a friend of mine put it; the Treasuries are becoming a crowded trade. At Option Pit, we look at volatility, and I am going to look at the volatility and the move in TLT.
Both the Implied Volatility and Realized Volatility are climbing in the TLT as the ETF climbs a wall of panic. Generally, I like to see a slow decline in IV as a name moves up. That is a normal IV pattern. The rapid growth in IV for the TLT means that some good old fashioned panic buying is stepping in. Too many either short too early or following the strong momentum now. This kind of movement usually spells a pretty move coming. Don't be too thrown off by the pull back today. The TLT has been doing the same thing since late April.
Charts by LiveVol (www.livevolpro.com)
What to do now? The one known is the Greek Elections on the 17th. This will be a referendum on the status quo in the EU. Take some medicine now, or try to go it alone and become a basket case for the next 10 years. The TLT is setting up as the mechanism to play that outcome in the Greek Vote. The Fed for now is really out of bullets. At least, that is what the weakness in the equity markets look like. The USA is pretty much eased-out.
The Trade
If you canít wait to sell this level, sell OTM call spreads in the TLT. Once the election in Greece happens, a big question mark is resolved (hopefully) and one way or another and the TLT premium will subside. Or just wait until the day before the elections and buy some OTM put spreads (my favorite). That most likely will be when things hit a fever pitch.
------------------------------------------------------------
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
View Mark Sebastian's post archive >
