The Oz Trade (update 1)

View The Oz Trade

What do you want me to say?

Let's strip away the fake modesty ... I'm smoking hot.

My June 11 and Sept 11 Aussie 90 day bill futures hit new highs tonight.  The move has been a nice one so far, but at this point the market has only gone from pricing in 100 basis points of tightening to zero.  I expect to see interest rate cuts being priced in soon.  These contracts have another 200 basis points of upside.

90 day bill futures in Oz

Just the start of a move

My AUD put options are up between 50% and 100% in about one week.  As the Aussie 90 day bill curve moves from flat to pricing in cuts, these puppies could double again ... easy.

As I mentioned in my last post, I also put some bids out there on deep OOM  Sept and Dec 30 year T-Bond options as well some June 11 Eurodollar options.  Only a few of the bids got hit and they've moved little if any in price.  I know I said I was only interested in these as a short term trade, but the more I think about it, that's not a good strategy.  Rather, these are options to put in a drawer for awhile.  If they hit, they'll pay off 10-fold or more.  In the more likely scenario that they don't hit, I'll have decreased my trading capital by a handful of basis points.

Having said all of this, I am aware that nothing I own (especially a winning position) moves in a straight line.  First, the mere fact that I am writing this cocky post means I'm setting my account up for a nice beatdown.  Second, my views are becoming or have even become consensus views.  Check out this apocalyptic piece from Ambrose Evans-Pritchard.  I don't want to suggest that AEP is part of the thundering herd of sheep ... let's just say news of the possible return of the Global Financial Crisis has made the papers - act accordingly.  I am not ready to close out any of my positions, but I have mentally prepared myself for a reversal in my good fortune - hopefully, I can stick to plan and add to my postions when the time is right.

I remain long June 11 and Sept 11 Aussie 90 day bill futures, long AUD Sept and Dec puts struck between 68 and 75,  long Sept 10 and Dec 10 UST-Bond puts struck between 100 and 115, and long June 11 Eurodollar puts struck between 98 and 98.25.