This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

How to Play a Retreat in Treasury Bond

In mid-day trading action on Tuesday we are seeing most markets sharply lower. In my opinion, this is due to not only investor angst over the Goldman Sachs hearings today, but also the credit ratings of Greece and Portugal being downgraded by Standard and Poor's.

It seems to me that investors are becoming more and more fearful of defaults by European nations. This appears to be causing investors to shed risk today. Because of this, I am seeing bonds and notes sharply higher as well as the greenback.

The 30-year Treasury bond is trading near the top of its recent trading range. In my opinion, I think we could see it retreat in coming sessions. I feel there is too much supply in the marketplace right now, and that the Fed is getting closer to tightening credit.

The market in my view has done an excellent job in recent months of sweeping bad news under the rug so to speak. Time will tell if this proves to be the case following today's news. I do feel we could see things calm down a bit in the coming sessions. Here is a way to try to take advantage of a drop in volatility and a retreat in bond prices should it occur.

Sell the June Treasury bond 120 call option for a premium of $468.75 or better. Assuming commissions and fees of $50 per contract, this would leave the investor with a net premium collected of $$418.75. This position profits if at expiration the June futures contract is at or below the strike price plus the premium collected.

In this case, that means that at expiration the position breaks even if the June bond futures contract is at 118'26. , and it profits if the contract is below that price. The risk on this position is unlimited. An investor can lose if the June futures contract is above the breakeven of 118'26 at or any time prior to expiration.

This is a marginable position, and therefore an investor can also lose money if the market makes an adverse move prior to expiration generating a margin call and the investor is forced to close the position. The position value can fluctuate very rapidly and at times experience wild swings and therfore an investor may also close the position with a loss prior to expiration without a margin call.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs