Trading Bonds Post Election

It’s the Monday after the Aussie Federal Election. It was an election that has so far drawn a bang on 50:50 result. As at Monday afternoon, we are still don’t know who the winner is. So how do you play that in the market. Well over the weekend, there were several newspaper stories suggesting Australia could lose its AAA rating. …

Sweet Divergence

Here is a nice little chart in Sugar. It shows the May-Oct spread on top and the May contract below. May and October are in different crop cycles, so this is an old-new crop spread. The interesting thing here is how the spread was following the underlying, as you’d expect. Then it stopped and made a good case for a …

Spreading and Legging: What on Earth?

A common area of confusion for a new or even intermediate level futures trader is the idea of a spread, particularly how to transact in one. This write-up will look at the two ways in which to enter a spread.

Trading The Obvious

In a recent update we looked at a spread trade in Corn, citing the upside move was overdone and the spread had the potential to narrow dramatically. See here. Over the last few weeks, the spread has done exactly that. This illustrates a very interesting point – unexplainable or extreme moves are often followed by very obvious moves. As traders …

DV01 Pricing Tools

Here are a couple of tools we use in the analysis of note and bond markets.

Some Thoughts on Corn

1. I saw some interesting stats the other day comparing 2012 with 1988 (chart below). Back then there were similar estimates for poor quality crops. Prices almost doubled then. We’ve gained only about 60% this year by comparison. That said the dollar value of the gain this time is more than double that of 1988. On one hand you could …

When is a Spread not a Spread

Spread trading is more an art than a science, but there are a few common traps we often see new traders fall into. Mistake#1 seems to be a particularly popular one…

Correlation and Lag Trades

Gold and Crude Oil in normal day to day movements are not overly correlated. They do not move tick for tick or take a lead from one another as strongly as the 10yr note and the 30yr bond. However during times of volatility, that correlation can increase and they do start following each other. Additionally, it’s not uncommon to see one market lag behind the other when volatility picks up. Here is a good example…

Trading Gaps with Projected Values

The good thing about correlated markets that open and close at different times is the potential for gap trades. The opening gap will occur when one market makes a decent move while the other is closed. Once that second market opens, you’ll most likely see a gap in the direction that the first market has moved. This article will show you how to project an open and therefore determine if a trading opportunity exists.

The Rolling of the SPI

You may be seeing some large numbers go through Time & Sales this week in SPI. These are positions rolling from March to June expiry. Typically this happens in the week or so leading up to the front month expiry. What you are probably seeing is large numbers going through Time & Sales, but not actually trading. This is 100% …