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August 8, 2006
I was putting this together for a few people following today's Fed
announcement and then decided I might as well send it out to
everybody....Some of it will probably not make any sense but give it a
look and call me if you are interested...
ON BONDS....
Dumb short term impressions...
With the action since the announcement, my guess is everybody is already
thinking "reversal!"...but today's sort of trade is typical...The herd
will continue to think bonds are going nowhere from here...especially
with the auction in front of us (which I would love to hear classified
as "didn't go well").
I think they now have a great shot at "quietly" accelerating out of here
over the next few days...Nobody will believe anything on the upside is
for real...then start chasing it when bonds get several
points beyond the high several days ago.
I don't see how they can do anything but go up from here...I mean, what
the hell is anybody going to have as an authentic reason to sell more?
All the bear crowd will have is just the same rehashed stuff they have
been talking since bonds made their low back in May...And they are all
already in the trade (and now suffering).
If they are going up, They SHOULD begin to move faster now...more
vertically that is.
I still look at implied volatility and am amazed (chart follows)....With
the market trading on its highs, obviously NOBODY believes this thing is
for real...
Etc., Etc...I think you continue to load up...All we've really done is
confirm the bottom over the past few months...Now is when they really
can start moving...
Cheapest I think I can ever recall seeing bond options...With implied
volatility having been pressed so low, I would assume this is due to a
ton of short options strategies having been taken...and with opinion
being as bearish as it has been, I would guess there are some monster
short call positions out there...I have seen the same situation before
(in bonds specifically) where the market got really explosive as the
market rocked through 2 or 3 strike prices (forcing futures buying) that
short sellers never dreamed would be threatened...
And for more leverage, but much less time, there are the October
options...
Thanks,
Bill
866-578-1001
770-425-7241
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