Option Investor

January Positions

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I realize that I have been suggesting holding off on establishing the full 10 positions for January because I want to keep some cash reserves for a few EPS Volatility trades. But I really think that the Treasury bond yields are oversold and bonds are up way too high. In my opinion, rather than selling the profitable positions and having to report the gain, perhaps bond traders are waiting until next week to liquidate. Why would they liquidate? Because a new President is entering into office and the honeymoon is about to begin. Also, the institutions and traders that have painted the tape have been able to push the major indices above their respective 50 day moving averages. That might trigger buying into the markets, following the short term sell off on Monday and Tuesday (my opinion), by many of the institutions that have been long the bonds. Basically, I think a little reallocation from fixed income to equities may spur a good long setup sometime next week. That means that the bonds may sell off and we can ride the wave to the downside by establishing a short bond biased trade. We can do this by selling the January Puts on the Proshares Ultra Short 20+ Year Bond Fund (Symbol: TBT). It might be confusing at first glance, but selling puts on a short position is still a bullish position. It is basically another way to be long the short biased ETF. If you haven't already done this trade, Sell the January 35 Puts with a target of $1.00 - $1.05. The risk management is a break and close below $35.51 or the recent low. Happy New Year!!

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