The 10 year yield cracked 4.8% today. I think it cycles right up to 5% and pierces through it.
That move sets up the trade I have been waiting on. When treasuries crack, I am selling naked puts on the ZB.
No spreads. I will buy the bonds wherever I get put at 105, 106, or 107.
The reason I am willing to take assignment is simple. If treasuries slide hard, I expect the treasury to step in and backstop that market.
I am waiting for my wave. When the ZB cracks into 107 territory, I start executing.
Now understand what today actually gave you. Almost nothing.
The S&P 500 finished up 36 points on roughly 1.2 million contracts. Options order flow was so thin it kept me out of trades I wanted in the SPDRs and even XSP.
The advance decline line sat at 60/40 the entire session. The widest we got was about 70 stocks on one side.
One area did move. Financials caught a big bid and then faded.
Pull up XLF over the last two sessions. It tagged the lower edge of the expected move, ripped back to positive on the week, then reverted straight back down.
Financials are the sector to watch from here. They are trading at or near all time highs with a flattening yield curve sitting in front of them.
The Fed is raising rates. The short end goes up. The long end comes down. None of that helps the banks.
JPMorgan is where I see the most opportunity. It is up 9% year to date after being down almost 10% in mid June. That is a staggering move in a short window, and I am shopping spreads to fade it.
Here is what I broke down in tonight’s session:
- The 10 year yield hit 4.8% today. The highest print in recent history sits just shy of 5%. I expect a cycle right up to that level and through it.
- My bond trade uses naked puts on the ZB with no spread protection. I am willing to own the contract at 105, 106, or 107 and I start executing when it cracks into 107.
- The volatility box in the S&P 500 runs from 7350 on the downside to 7700 on the top. We are back inside it, and that includes a trip down to 7511.
- The SPX priced a $90 move for the week and has already covered about $100. There is still $60 of movement priced into Thursday and Friday with the employment number Friday morning.
Volatility picked up inside a session that looked dead. That is the setup nobody is watching into a holiday weekend.
