Monday, March 05, 2007
The scent of capitulation is finally in the air, as everythign has extended its losses, particularly FX carry.
Macro Man senses that risks of a bounce are rising, perhaps stoked by today's service sector PMI in the US?
The obvious risk/reward play is in US bonds, which have enjoyed a substantial rally over the last month or so. Macro Man hasn't got the appetite for a straight bond short with a concomitant gap risk in the event of weak data.
Rather, he will optionalize his views. Macro Man buys 400 May 108 puts on the March 10yr future, paying 22 option ticks (i.e, 11 futures ticks), for a total cash outlay of $137,500.
He will then use a bounce to establish/add to more risky asset shorts and hedges.