I need to post about our trades and current positions, but until then, enjoy the run. A first time race report: Not sure how to do a real race report, so as a first attempt, please bear with me on the learning curve. My goal has been to run in the Boston Marathon. However, as arguably the most prestigious race out there, there are certain qualifications that have to be met in order to participate. The first, and probably the most daunting challenge is the qualifying time. These times are broken down by your age and as of the 2013 race, they were significantly lowered. As an 18-35 year old male, I now needed to run 3:05:00 or better {down from 3:10:59} just to be considered as qualifying. The time was lowered because last year, they had so many qualifying applicants that they chopped it off by time and my age bracket had to be sub 3:08:40 {more than 2 minutes faster}. In order for me to get this goal accomplished, I was going to need a tune-up race prior to going to Champaign for my next full marathon.

The Cary Grove Hillstrider's Half Marathon is the self-proclaimed hardest half mary in northern Illinois. Sounds like the perfect type of race to get the competitive juices flowing again and to work out some racing strategy before getting into a full. It was unseasonably warm as we prepared to start. The 8 am temperature was 68 and though that doesn't seem exceptionally hot, it would play a factor in my performance later on that morning. This was a non-tagged race, meaning that when the gun sounded you ran and if you were in the back of the pack, well you were just going to have a slower time.

My half marathon goal was 1:27 to 1:28. I figured that would be a sufficient time because the goal for a full was 3:00 {ensuring that even if they lowered the BQ time bracket for my age group I should still be able to run 2013}. I wanted to go run hard enough that I had very little left in the tank at the race's end. This strategy would prove strangely detrimental later in the race even though it seemed like an excellent idea at the time. My training partner had previously run this race and offered a couple of suggestions:

1. The hills are intense and there is no shame in running them a bit slower than pace.

2. Open it up on the downhill portion

3. Save something for the last 1.5 miles...

Here's the map

Miles 1-3
The course shape resembles that of a figure eight, starting and finishing at the local high school. The first three miles begin with a gradual decent and then an impressive drop down to one of the race's lowest points.

I was a bit slow getting out of the gate as I nestled in the front of the 7-minutes per mile group. As a result my first mile was relatively slow time {in race time} but it felt much faster to me due to all of the weaving and grinding it took to break free from the masses. The decent down the that first big hill was fast and though I was tempted to really open it all up, I restrained myself, thinking it would be intelligent save it for the climb I knew was just around the next big turn. My three mile split was 19:46 and pace wise, that was near perfect for what I was hoping to run.

Miles 4-8
These miles were marked with rolling hills though they were nothing too over-powering. Only one of them would need to be rerun and it was a steep grade in the front and a gradual decline. I attacked the first few inclines pretty quickly, shortening my stride and pounding up them right at race pace. I could feel the burn starting to grow in my quads, but from what I remembered of the course map, there would be a long, gradual decline again around mile 7. Banking on this, I pressed forward. I had found a group of 4 runners that we're running 6:45 miles very consistently so I began drafting with them as we eased down mile 7. As mile 8 approached, I first noticed the sign for one of the hills; it said "hill #4" and also named it, though I can't remember what it said. This was a hard hill and I felt my energy truly beginning to wane. Thankfully there were Cliff Gels at the base of the hill and with that blast of sugar I could feel my energy levels rebounding even as I reached the backside of hill #4.

Miles 9-13.1
Mile 9 was the switch back point where you were back on a section of road you'd already run. It was a relatively flat, straight shot that would eventually bank to the south and head up that first huge hill we'd descended to begin the race. My speed was holding fairly constant, but as the sun beat down and the racers around me could sense the finish creeping closer, the speeds quickened. My 9th mile would wind up being my fastest {6:25} and in retrospect, when coupled with the hill that ended after mile 10; my race future had already been written. I remember passing another runner as I climbed hill #5 and he championed me on a great race and a powerful climb. As I forged ahead I could feel myself creeping very close to the dreaded "red-line". I knew that line, and I knew that if I crossed it, I might end up like my first half mary {first attempt}. I was forced with a decision point: slow down and lose valuable minutes or press ahead, cross the line and pray that I make it to the end. I knew that hill #6 still loomed ahead; I remembered my partner's warning to save something for the grueling finish, I made the call. I slowed. I gave up 35 seconds per mile in an effort to finish strong.

Mile 12 held the final hill, but realistically it was a set of 3 softly rolling humps. Unfortunately the damage had been done, I was now struggling to maintain my final mile at a respectable pace. I was unable to dig any deeper to tap any hidden energies. I was over the line, struggling to reach the finish. As I came down the chute, I faced my feared time. 1:30:14 as I crossed the line, two to three minutes late. Though I felt exhausted at the time of crossing, I knew that I had made a fatal flaw in crossing the red-line. It tricked me in to being far more defeated than I actually was. In retrospect, it wasn't the end of the world. I'd run a good race, on hills, and I had finished within a few minutes of my goal. I had done 13.1 at a pace that will hopefully carry me to a qualifying time in just a few short weeks. My public stats can be found on MapMyRun.com 

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Through 2/3 of a Q

Apparently, it wasn't my week off and I was actually responsible for getting a post or two out there. I have one ready to go, but its just a random trading story and to be honest, it still needs work. So, while I work on that, chew on this and some of our current trades.

Euro Dollars: 

Green March {'14} 9912.5 straddles:

We've continued to scalp the gamma as we've moved around. Our best sale to date was 9936.5 and on Friday we were able to buy in 9912s directly on the number. As the futures have traded lower, we've dumped all of our puts associated with the straddle for deltas. Average sale on those puts has been around 4 ticks. Currently our position is carrying an 80% short delta vs our remaining calls. This has been a laborious trade and would have been significantly better had we executed a few days later with the 9925 straddle instead of the 9912.5.

April 9950 straddles vs June 9937.5 puts:

We do this trade once a quarter, selling the April straddle to buy the June puts. The risk is that LIBOR explodes higher as we're naked short upside. Historically we collect between 5 and 7 ticks to put this trade on and usually get out when it drifts towards even money. However, as we put it on this time, LIBOR exploded higher. Specifically, the June contract rose quicker than we had anticipated and we took a fair amount of heat on the position. Thankfully, it has come back some, though this too looks to be a difficult trade going forward. Eerily similar to the Green Straddles.

Sept 9925/9950 put spreads:

As our June spreads get further out of the money {01.19.12} we've been actively looking for another insurance bet that allows us to trade some of our other products more aggressively. We settled on the Sept put spread for a couple of reasons that you've heard before. If we rip lower, it pays out 25 ticks, its pretty cheap 3.5 - 4.5, the decay on this spread is very small relavitve to the time frame. We've purchased this as our lotto ticket just in case any of these European Nations get froggy or PIIGiSh. Our average buy was 3.5 ticks vs Sept futures at 9955.

Longer term look outs:

• Really want to see the March '13-'14-'15 one year fly drift down towards -35. Don't necessarily want to be short here, but we'll be looking to accumulate a long position as we head down.
• Likewise with the Dec '13-'14-'15 one year fly, we feel that it is a short anywhere about -17.
• There seems to be a slight disconnect between what the Fed has been saying about the Fed Funds rate and where a couple of large players {presumably Brevan Howard} have been trading the futures. The current mandate is that there will be no change until mid 2014, however, starting in June 2013 and heading back there is a consistent trend of higher than average spreads. If the Fed doesn't move rates, through this period, there is a great opportunity to collect 'free money' by selling the June '13 at 9976.5 and buying the Jan '14 at 9963.5. You effectively "sell" each one month spread at 2 ticks if you look back to the front of the curve, these have all been exit-able around 0-.5 {some have traded as low as -1}. Not really advocating launching such spreads, BH isn't usually wrong. Just noting that there's a disconnect. Unfortunately, the locals in the FF's option pit wont make option markets out that far. So its futures or nothing.

Hope it helps. Fight the good fight.

~LH

Postitions

As usual the inventory continues to roll around and as always the hope is that this rolling comes laden with fat P and tiny L.

Fly update:
Sold entire core position of Dec '12 - '13 -'14 butterflies at an average price of -29, locking in a little better than 6 ticks of profit. Since that time, we've started to reaccumulate a small position AS LONG AS we're able to sell the Dec '13 - '14 -'15 fly as a package {1:1} for the price of -14 or better {eg buying -31's to sell -17's}. As I write this, that double fly is trading around -11.

Front Spreads:
We've completely rolled out of the March contract and unless something crazy happens {eg I get antsy and buy front month gamma} we don't anticipate getting back in. We're working to buy the June/Sept/Dec '12 fly for -1 or better. From our charting, it seems to have been tracking in fairly tight channel and buying -1s with the goal to add more at -2 fits our risk parameters. We'll have a soft-stop at -3.5 with an anticipated exit of positive 2.

Straddles:
As always, we continue to flip gamma around the March '14 9912.5 straddle that we're long. We will be looking for an opportunity to roll this to Green June shortly. Currently, we're short 30% of our deltas vs. 9918.

Put Spreads:
We've continued to hold our unhedged 91-93 put spread in June '12. Though it is under levels where we initially put it on, we have added to the position and it continues to be our 'insurance policy' in the event that all hell breaks loose around the Mediterranean Sea.

Outright Puts in the Fed Funds:
Interesting to note that within the last few days, a couple of major players have resurfaced looking to purchase downside protection. I mention this for a couple of reasons.

1. The Fed has proclaimed that they will not be moving rates until 'the latter part of 2014'. This is intriguing because the protection they're buying is for Feb of 2012.
2. The two firms doing the majority of the buying are JPM and Fimat. I can't speak with any definite authority as to who is behind these mega-houses, however in the past, Brevan Howard has always come through Fimat in the Fed Funds. He's been right more times than not and has fleeced the locals in that option pit countless times. Maybe he's back?
3. In our opinion, this is the type of trade that blows out traders. We've all heard the rhetoric about when the Fed will finally be moving rates and under that assumption you can safely sell every 9975 put to lower and collect your daily decay. However, the Fed is dynamic, and it wasn't more that 7 weeks ago that we were all clamoring for QE3. Now that stimulus is a distant memory and the we're headed to a S&P 1400 print...what's to say that we the rates don't start to get froggy sooner? Like 18 months sooner? Just a thought.

Trading size is always more fun, but so is being able to sleep at night.

~LH

Couple of Quick Updates

Good days are quickly maligned by trading errors. Best to stick them in a hole and move on. Take your lesson or your lump and keep slinging. I guess that maybe, just maybe its a zero-sum game and one of these days I'm going to have the winning error of a lifetime. That being said, I have no intention of holding my breathe for that moment.

I want to write about just a few of the Eurodollar positions we have on and how we're managing them.

Currently we have an outright long position in the Dec '12 - '13 -'14 butterfly. We established the position from roughly -35.25 and though we've scalped some intraday {+/- a 4 tick move} we are holding our longs. Against it, as a micro-hedge, we're looking to sell the Dec '13 - 14 -'15 fly. Though we're NOT doing this trade one to one {therefore not establishing a true Eurodollar double fly 1 x -3 x 3 x -1} we are doing this to allow ourselves a chance to catch the fly contracts rolling through different periods and configurations. We expect the Z2/3/4 to appreciate and the Z3/4/5 to sell off based on our analysis of their trends vs the constant maturity charts.

The March - June spread has been a lot of fun to trade as of late. We hedged our short position by layering into the March - June - Sept butterfly at -3.5 and -4. That fly is currently trading -1 and we're now short from that level. This is not a home run type trade. Rather we're just trying to catch the fluctuations as it meanders through various price levels and back. Ideally, we hope to be completely out of this fly by the week's end {2/17/12}.

Finally, we've continued to buy back our short deltas versus the Green March 9912.5 straddle that we're long. We maintain a short delta position of 50% from a price of 9931. Our straddle is still roughly the same price we bought it at {18 vs 18.5}. Also, in order to buy more deltas in, we have sold 50% of the puts that comprised our straddle at a price of 4 ticks. This allowed us to lock in some profits, get long some deltas, and avoid the impending acceleration in the theta decay. We still have 75% of our original position and have resting GTC's to cover our remaining shorts as we approach the strike. Conversely, we have GTC sells out our recently purchased deltas.

Hopefully your day was error free and full of huge PnL.

~LH

Blowing up, not Blowing out

Back in June '11, after a few beers, I began to shoot my mouth off about my athletic prowess as a runner. Though I hadn't run since 8th grade cross country, I was sure that I could still do it and furthermore, proclaimed that I would be running at least a half {if not a full} marathon by the year's end.

First race I ran was September 11th and it was one of the Chicago's Half Marathons. I finished...though its not exactly clear how. At some point, dehydration, hypoglycemia, and sheer lack of training caught up with me. I staggered the last few meters to the finish, woke up in the ambulance to some EMTs asking me questions, passed out again to wake up in the ER, passed out demanding that they don't cut my shirt off or destroy my iPod, woke up and passed out again.

I had hit the the runner's Red Line and had pushed my body past its working zone. Suddenly I had a new respect for the running and the toll it can extract from your body if you're ill prepared or not properly conditioned. In a strange, quasi world, it reminded me of trading.

It was as if the race had become a metaphor of my trading. Maybe I staggered to the finish, but the results had been less than impressive. My time of 1:38 was nothing spectacular and my arrival at the ER was ultimately a kick in the shins. It was as if I had just been trading huge, slinging futures here and there until the weight of my own position caused me to puke. All traders that have longevity in this business seem to have an innate sense of when to hit the eject button on a loser. Strangely in a race, that eject button was the finish line, but to hit in an orderly fashion, would have required me to walk. In my mind Walking was the same as Puking a position. I wasn't willing to make that trade. The results are documented in my permanent medical history.

I've made the puke trade countless times. It never feels good during the vomiting session, but the relief shortly thereafter is always euphorically refreshing. I'm reminded of one of the few stories I can recall from my uncle Al before he passed away. After listening to any problem you might have had he'd calmly say, "It doesn't matter how many times you've fallen off the horse, it only matters how quickly you get back on." I attacked running with renewed vigor. I adjusted my methodology, changed my diet, trained differently...almost as if I had gone back to the desk, found the charts and worked a new strategy for the next time my positions went awry.

I don't share this to say that I've got it all figured out in either of these areas {running or trading}. But I will say that I continue to do both regardless of the beat downs. The goal for me isn't to just finish the race or exit the trade, it is to smash my personal best and to squeeze every last tick out of the winners. More running tales later on, but for now, back to the grind of the trading day.

~LH

Super Bowl

I had intended on getting this out on Saturday or even Sunday, but as usual, life got in the way. By life, I'm referring to a 2 hour trip to Costco, church, little people who want to wrestle, and 36 miles of running over a 36 hour span. Oh, then there was that part about the Super Bowl consuming ~4.5 hours of my life. By the time I actually got around to writing, my brain was fried and it was moved to today's agenda.

Friday was a fairly busy day. I don't really want to write about the legitimacy of the NFP data and whether you believe it or not. Rather, I'd prefer to focus on what happened in the products we watch and where we think the next few weeks will take us.

Let's talk Fed Funds. There was a noticeable volume spike heading in to the week's end. Where we are normally seeing 18-22K contracts a day, we suddenly saw a bounce up north of 50K. Obviously, customers wanted to move some of their inventory prior to the release on the Unemployment figures on Friday. On Thursday, prior to the data, a new customer came to buy 3000 of the July '12 -- Jan '13 future's spread. He started accumulating at a price 2 ticks and paid up to 2.5. We count spreads on an adjacent month basis. That is to say, that selling 100 N/F spreads actually resulted in selling 600 spreads {100 of each adjacent month NQ, QU, UV etc...}. At the time, 2s looked to be a decent sale. However, by the time the customer started lifting our 2.5s the trade no longer looked attractive as all the hedges has disappeared.

As the number hit the tape on Friday, the Funds sold off 1-2.5 ticks {which, if you're familiar with this product, is a substantial move}. Right on cue the customer was back to buy 1000 more spreads and though he was only 2.5 bid, we were sure that he'd need to step up and pay at least 3.5 in order to get filled. Hindsight trading says we should have unhitched the wagon and dumped every spread we had in our inventory at that moment. However, we didn't and within an hour or so, the Funds had rallied, the spreads had collapsed, that bid was long forgotten as the 1.5s began to trade in N/F. The turn had been subtle, but the force behind it showed that market participants still agreed that we're not going to see a Fed Funds rate change until 2014. We did well when viewing the traded for 50K feet, however, had we taken a more aggressive stance prior to Friday {which market participants did post-NFP} we would have locked in a great trade.

~LH

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

Open Positions

Currently, we have on a few positions that I'd like to note as some are now gaining traction and others are languishing in the depths

All in the EuroDollar Complex: {#GE_f}

9912.5 Straddle in March 2014

• Last post I mentioned that we were long the green March {2014} 9912.5 straddle. We originally initiated this trade when it was very close to ATM {vs. 9913.5}. Our thought process was that we might be able to get a run up, or down, in the greens and we would then have a chance to scalp the gamma. As it turned out, we bounced up to 9927 and as a result, we sold deltas the entire way up. Now the greens are starting to pull back while the euphoria of a stalling 3-month LIBOR is beginning to wain and it's time to do an inventory of where we're at:
• Hedges: We sold deltas at 14, 16, 19.5, 22, and 24 {equally} for an average short of ~9919
• As we approach that level again, we'll be looking to buy back some of these higher sales and to subsequently place GTC's to the upside.

 9900-9937.5 Put Spread in June 2012

• We bought this purely as an insurance policy against Europe. Our entry level was 3.5 ticks vs 9948 in the June '12 futures. Locals had a 22 delta on it at the time of execution.
• Our thought process was two fold: Cheap-ish price for a 10:1 payout and we've noticed that as the time passes and/or we drift higher, this type of structure actually ages very well {code for it doesn't lose its value instantly}
• Since we're using this as a macro hedge to our book, we didn't execute any deltas vs 9948. Our first buy will be ~9943.5 but, we intend on keeping it significantly under hedged so as to fully capture any type of front-end credit event. {Greeks missing their end of March bond payment?}

 Just a peak at what we like. I think you're able to still execute both of these strategies relatively close to the our levels if you're so inclined. Obviously, we have others and my hope is to write about a few of our futures plays tomorrow.

A bit of housekeeping. The Philosophical Rail Defender has requested a name change. I guess that since he's no longer on the floor, it no longer makes sense to think of him on the rail...who knew? At any rate, I've added him as an author on here under the acronym EDUB. Maybe it sticks.

~LH

Churning a Friday the 13th

Happy Friday the 13th! Here's a few observations from the last week of trade. 

Over the past few sessions the White Pak in the EuroDollars has been on a tear. Since 01.05.12 they have bolting higher. The most obvious correlation has been the recent down ticking in LIBOR, which has moved from .58250% to its current level of .56700%. {a net change of -.0155} After relentlessly charging higher {or grinding to a halt only to uptick again} it has been steadily reversing. Helped by relatively positive auctions in Spain and Italy, the big boy banks have been easing a bit and thus we've downticked. However, with the rumored downgrades of Austria and France today, the EuroDollar futures have pulled off of the uber highs and are sitting still, just a touch below last night’s settles {future's prices}.

It is interesting to note a few highs/lows:

• Though LIBOR is currently printing only .567% the White Pak had an implied rate of .480% early Friday morning.
• Post downgrade rumors, they had repriced to ~.550% much closer to the .567% LIBOR print.
• The curve began to flatten again today with the back months steadily gaining in price.

Trades to have on:

We're currently keeping it pretty tight. Day trading the front quarterly spreads in the ED as well as some of the more stable 1x2 butterflies. 

• We have a core position of short the June/Sept/Dec butterfly in the ED's. We initiated this at a price of 1.5 ticks. It has been as low as .5 and briefly traded 2.
• We think that some of the 2013-2014-2015 1 year butterflies are starting to look really attractive. On a daily chart, many are breaching their 2 standard deviation levels {Bollinger bands}We're looking to establish a few longs in this area.
• We are currently long Green March 9912.5 {2014} straddles in the EuroDollar.
• Our Fed Funds book is currently long spreads, though in terms of size, we're on the lighter side of things.

Euro Currency {courtesy of PrD}

An interesting trade to look at is long the Euro FX.  Yeah, yeah, I know Europe is burning, and the Euro is surely headed for $1.20 at the very least and perhaps even par.  Well, guess what the crowd is thinking the same thing as net long positions declined by 24% over the past week, while net short positions increased by 29% in the same period, leaving the long to short ratio at 1.06, or roughly 51% long.  This is a HUGE shift in sentiment, warranted or not, when a trade gets too one sided, we all know what comes next, think of gold and silver in the fall.

Look at oil in the last week, everyone was long because they just knew that sanctions were going to be imposed on Iran and this would drive the cost WAY up, maybe as high as $150. Cooler heads prevailed and the market tanked $5 in two trading sessions.  This is what happens when the crowd thinks they are holding a sure thing and are going to get something for nothing.  Ever notice that the more hysterical the market gets the more people climb on board, throwing all caution to the wind and buy higher and higher prices, or vice versa?  

My question for all those piling into a short Euro trade right now is, where were was you in October when the Euro was at $1.40?  Wouldn’t it have made a lot more sense to get short then?  That play would have required a little forethought and time spent in research.  In my opinion, the Euro began its decline over 3 months ago because the smart investors did their due diligence and bet accordingly. 

The fact is this; the ECB just gave European banks the lifeline they desperately needed with the LTRO, almost 500 billion Euros for 3 years at 1%.  Accordingly, the basis rate swap has headed south as it should.  This development should signal that one should be closing out short positions, not adding to them.  There is a great possibility of a MASSIVE short squeeze.   Such a move could launch the Euro back up to $1.35 or higher.  For this reason, I recommend scooping up a lottery ticket to fade the herd mentality.  The March $1.35 call can be purchased for 30 pips, or $375 bucks per one lot, with over 50 days to expiration, this is a trade you can’t afford to not take.  If it doesn’t work out, no big deal, but I would imagine an outright short Euro position is going to expose your account to a much bigger loss than $375.  Happy hunting!

Enjoy the long weekend with people that matter

~LH

2012 Predicitions

Everybody is doing it these days, why not throw my hat into the ring. Besides, its always fun to be ridiculously wrong and subsequently mocked.

I'll focus on the areas where we actually trade, work, and enjoy.

Left Hash's Calls for 2012

Fed Funds: 

I think Ben and his gang have sufficiently squashed any hope of a rate hike for all of 2012. Their language at the last FOMC meeting even hinted at further QE, which in my opinion, is an even bigger mess than the one he's trying to solve. The funds rates have been settling around 7-9 bps for a while now and though the market and its participants don't really like this level, I don't foresee it moving more than 4-5 bps {and the only direction is lower}. I am comfortable selling the 1 year 87-93 strangle strip at 39.5 {1.5.12 settlement prices + some modeled data}. Any premium collected with cover you in the rare event that we actually move. Additionally, I believe that our model will create a lot more opportunities to trade if we do head lower and spreads start expanding. I firmly believe, a settle outside of that strangle has about a 15 delta. 

ED: 

I don't believe LIBOR will stay here for the year. I believe that the European banking/sovereign debt crisis has 'mostly' blown over and we'll begin to see a return to cheaper money. If Ben and company do initiate some type of QE3, I don't think its out of the realm of possibilities to see the 97 line come back into play across the whites. However, I would wager that for the most part, you'll see LIBOR average around 40-45 bps for the year with an occasional dip down into the 50-55 range. I would buy put spreads to take advantage of extremely rich put skew and to hedge some of the event exposure {9925-9900 or similar}Buying calls on the grind higher also would be prudent, as they somehow 'decay' on an uptick in the futures. It will be interesting to see if the Fed Funds vs Eurodollar correlation comes back into line as 2013 {and raising rates} looms. 

SPX: 

I don't really trade equity futures except to speculate. My one year target is 1405. The range will be 1080-1465. Drifting lower at the end of Q1 will bring about some type of QE3 and rally the equities into the 1400 range. A long grind for the summer months, followed by a slight pull back into year's end for a gorgeous print of 1405. Buy ES puts when the VIX is below 20, sell everything you can if it spikes above 40. 

Yield Curve: 

The Tens will print 1.50% and the Bond will touch 2.40% and because neither is good for anyone but giant banks, they will snap back and settle at 2.25% and 3.50%. The locals still have the front skews to the calls {implying that in the near term, the traders feel we'll trend higher and therefor pay a premium for that protection versus the puts} However, if you look 6 months out that trend levels out and 9 months out, it has actually shifted towards the puts {implying lower price and higher yields}. I wouldn't be afraid to buy puts and sell calls up to 3 months out. 

Gold: 

 Currently $1600 

2012's high: $1872 

2012's low: $1344 

 Settle: $1440 

Crude: 

Currently $101 

2012's high: $114 

 2012's low: $82 

Settle: $88 

 EuroCurrency: 

Currently $1.2725 

2012's high: $1.3630 

2012's low: $1.2200 

Settle: $1.3150 ______________________________________________________________________ 

Never to be out done, my colleague, Mr. PrD {Philosophical Rail Defender} has offered a quick glimpse at what he believes will be our 2012. 

Mr. PrD's Calls for 2012 

Overall, I think 2012 will have a periods of reflationary hopes, dashed by deflationary fears, much like 2011. Much will be dependent upon further increases in central bank balance sheets. However, I predict that the half-life of any such increases will be increasingly shorter and shorter. My advice for the year is not marry any one idea, keep an open mind (don't fall into the trap of extreme sentiment accompanied with herd psychology), and understand that we live in exponential times. 

That being said, the predictions are: 
S&P 
High:1320-1350 
 Low: 950-980 

Oil 
High:110-112 
Low: 65-68 

Gold 
High:1850 
Low:1400 

30 Year yields 
High: 3.75 
Low: 2.40 

Euro currency 
High: 1.3400 
Low: 1.1800 

Hope we all make a ton of money this year. 

~LH