End of month housekeeping

I took advantage of the break in the stock market on Friday to blow out of that POS VXX position at $20.75.  A small loss, but a large lesson learned (actually re-learned for about the 100th time) ... making a trade just for the hell of it is a sure way to the poorhouse.  I purchased VXX for no other reason other than the fact I was a bit bored after selling off half of my Eurodollar calls.  After all, I had more than tripled my money in these calls in the space of a few months.  Why not take a slice of those winnings and try to call the top of the stock market by purchasing VXX?

In more important news, my Eurodollar calls remain at about the same levels they were at when I unloaded half of the position.  In an interesting twist, the tumult in Europe has widened the LIBOR/OIS spread.  Thus, even though the Fed Funds rate remains unchanged, 3 month LIBOR was at around 0.40%, up  about 15 basis points from its lows.  Should LIBOR remain at these elevated levels, it would reduce the upside in these calls from 75 basis points to 60 basis points.  Should LIBOR continue to blow out, these calls could go down in value even if the Fed does not raise rates.  I alluded to this possibility in my original description of this trade.  At this point, I'm not terribly worried.  My bigger worry is that the Fed panics and jacks rates by 50 basis points this fall.

The bottom line is that I feel my thesis since late last year when I started this blog remains the same - the Fed will remain on hold for longer than the market has priced in.  99.00 calls on Dec 10, Mar 11, and Jun 11 contracts remain the best way to play this idea.  Having locked in a windfall profit and unloaded half of the position, I'm comfortable sticking the other half in my bottom drawer, taking them out in a few months, and seeing if they have any value.

I'll just put in a little dig at the classic NYT article (Interest Rates Have Nowhere to Go But Up) I mentioned a couple of posts back.  By my calculations, the 10 year Treasury rate has gone down by about 20 basis points since that little bit of brilliance was published.  I'm not proclaiming victory yet, I just wanted to point it out.