I brought a bull sandwich to Schwab this morning.
One of the three trades I did on air was long, which is rarer than it should be lately, and Marley clocked it straight away.
All three came out of the same problem, which is that the Fed looks pretty much intent on raising short-term rates while the Treasury looks intent on holding long rates down.
Those two things can’t both work, and every position I put on today sits in the gap between them.
So the first one is a bank sitting just off its 52-week high, and I’m short it.
The financials have been bid up and I don’t fully understand why, and nobody knows what that yield curve looks like in three months. Banks should be nervous about that, and this one’s trading like it isn’t.
The bull sandwich, which is a bond play.
There’s a global selloff going on and that’s exactly why I want the other side of it, because the Treasury has said out loud it’s coming in to buy the long end.
Call it yield curve control or Operation Twist or whatever you like. I’m not trading against the Fed on this one, I’m trading with the Treasury.
And the third is a name I don’t normally pull up at all.
It’s not in my crosshairs, I like liquidity, and this isn’t usually where I go looking. Then I pulled the chart and it’s sitting just off its high with a sharp reversal off that level, and the market has glossed right over it.
I named all three on air with the strikes, the expirations and the reasoning on every one.
To your success,
Don Kaufman
