One down 11 to go

January is almost in the books. Can't say that it was a horrible month, though the trade has been slightly less than amazing. The most salient point to take out of the month was Ben Bernanke's latest round of QE2.5 {term stolen from Bill Gross}

The idea that we're not going to get any movement until late 2014 is disconcerting to say the least. Spread percentages are currently priced in the low to mid teens all the way out through 2013 though, early last week some of the fourth quarter spreads were implying the chance of a 25 bps raise at about 25-30%.

Ultra low rates mean that banks will continue to make shadow profits, burden the public sector with their toxins if need be, and nurse patiently on the teat of the federal government.

Trades:
We've kept out March 9912.5 straddle on in the Eurodollars. We've adjusted for delta and we're currently short 70% of our futures from an average price around 24.5. This might seem low, considering that we are printing 9932.5 as I type, but this is just how the gamma game works. The last few deltas will probably be MOC {market on close} near the end of the contract's life {especially if we don't see a pull back into the low 20s}.

Our June put spread is still intact. We have made no adjustments as of yet. However, if we see a sustained rally above 9955-56, we will be looking to roll the strikes up for a minimal cost.

One year butterflies continue to print in the lowest ranges seen in many years. That fact, in correlation with the Green futures {March '14 - Dec'14} being at historical highs leads us to believe there are some unique trading opportunities out there for those willing to take a bit of risk. Both the Sept '13-'15 and the Dec '13-'15 flies have a zscore of -2.5 of more {implying they are more than 2 standard deviations away from their 200 day moving average}. Granted, this might be the result the newest disclosure that the Fed will most likely be on hold through 2014, but if you're willing to stomach a bit of pain {or maybe lock it in for 6-12 months} these trades may provide the return you're looking for.

~LH