Original in-average at +82. Shaken out of short trade at +66 on NFP last Friday. Managed to lock in some profits at +53 (Dubai) but overall, trade has not been as profitable as might have been had I managed it better and gotten out entirely at the SHS top objective around the mid +50s.
- Technically, shorting is the correct play. Chart in correction, picture remains down. Question of entry point with reasonable risk/reward. Current +62 is not good. Need something above +70 to make sense. Positive carry being short. For a home run, need the economy to fade. If we don't get a good entry point, I would rather give this a miss. Run like mad if the Fed gets rid of the "extended period" stance.
- There is a case to be made for the reverse trade (long calendar spread). At ZIRP, I think when the time comes for Fed rate hikes/normalization, it is going to be done in lumps of 50 bp (at least for the first couple of hikes). Given that the period between Jun10 and Dec10 covers 5 FOMC meetings, it is stupid to be short this in the +50s. Be mentally prepared to flip long once there is a concrete change in the benign Fed outlook. Short term interest rate spreads do not just creep up; when it's time to widen, they explode.
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