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Just a thought, next week there are 3yr, 10yr, 30yr auctions. Isn't it
common practice for bond houses and other savy traders to short bonds going
into the auctions? Doesn't this make them more attractive to ensure the
sale of the new paper? Don't those same houses and the piggyback traders
cover those shorts during and immediately after the sale. Just maybe so
many were expecting bonds to reverse here anyway that their stops were up
tight and what is normally a perturbation in the charts became a rout. Any
bets that bonds will stabelize next week during the auctions?
BobR
At 06:16 PM 8/3/97 +0100, 5150@xxxxxxxxxxxxxxx wrote:
>In refernece to one of my prior articles, another RT was kind enough to
>send me a correction. I've left the correction unattributed because it
>was sent as a direct email and not generally posted, probably out of
>considereation for me. So...
>
>What caused me to make this remark about volatility was that I usually do
>trade it but in this case I wasn't.
>
>In fact, after Friday's close my thought was to wait 1-3 days if a
>congestion develops before recovering the 118's so I could wait for the
>volatility to calm down after Friday's move. Sure glad I made the mistake
>on paper and not for real!
>
>Phil
>
>My old article clipped...
>> >Two days ago I sold the DEC 118 calls near their highs of the day at 1'23.
>> >Yesterday I had to withstand the heat for a day which was not fun, as the
>> >calls got punched up to 1'36 and slightly more today at the open. They
closed
>> >today at '46. I'll get two more days of theta decay over the weekend, plus
>> >a lowering of volatility (options traders, don't you just love that
sucking
>> >sound of volatility imploding when you're short premium?) and it should be
>> >time to think about protecting profits or just getting out.
>> >
>> >
>
>The correction...
>> Congratulations on your good trade, but I think you're wrong in expecting
>> volatility to DROP after a huge move in the bonds. Implied volatility was
>> already extremely low to begin with, and a move like this will generally
>> "spook" the market, so option premiums tend to INCREASE because of implied
>> volatility increases. You were on the right side of the market, so you'll
>> make money anyway, but it's becuase you were right on price direction, not
>> implied volatility direction.
>
>
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