Capturing the move higher in rates

1) 25 October email also published on Barchart and Seeking Alpha.

Entry and exit strategy

4 October 2022 Short 250 GEM22 contacts at 99.80 representing a rate of 0.20% position value $125,000

Price 5 April GEM22 98.385, rate of 1.45% position value $1,009,375.00 open trade equity $884,375.00.

Maintaining this position until red EMA9 moves above the blue EMA18 on this chart

2) Fundamentals

14 February 2022, 3-month deposit rates had nearly the worst negative rate of return in history paying 7.09% less than reported inflation, more than 9.00% less than actual.

Sources & Data

14 February 2022 the world’s most liquid interest rate derivatives market was pricing in the following 3-month deposit rates through December 2031.

Sources & Data

The market is telling us there will be 7 rate hikes between now and December 2024 from 0.41%, to 2.21%, that this 1.81% increase will magically take a reported inflation from 7.90% down to 2.00% and rates will hold steady through December 2031. Not happening unless the Federal Reserve is they only one buying Treasuries. For more on the fundamentals that will fuel rates higher see this link.

How this trade works

If price action is above the EMA9 and the EMA9 is above the EMA18 we’re long.
Risk on long positions, if the EMA9 moves below EMA18 we’ll exit the trade.
If price action is below the EMA9 and the EMA9 is below the EMA18 we’re short.
Risk on short positions, if the EMA9 moves above the EMA18 we’ll exit the trade.
EMA chart to track this trade, each 0.01 = $25.00 per contract
Chart prices are updated every 15 minutes

Contact me if you’d like to review more advanced strategies
Today’s Technical Opinion
Futures Quotes
Options Quotes

3) About the contract we’re trading

3-month rate futures (Eurodollars) represent the interest on $1,000,000 for 3 months, each 0.01% change in rate equals a $25.00 change in contract value, a 1.00% move $2,500 per contact.

- 3-month rates are traded at the world’s largest dollar volume exchange the CME
- The 3-Month rate contracts is extremely liquid
- Total number of contracts outstanding 12,865,411
- Total face value of contracts outstanding 12.865 trillion USD
- Delivery dates traded this month through December 2031
- Positions can be established or liquidated 23 hours a day.
- Video introduction to 3-month rate futures (ICE Libor/Eurodollars)
- Rate educational videos and resources

How it works

As rates rise the contact price falls to reflect the increase in rate. To convert contact price into the rate it represents take 100.0000 – the contact price = the rate.

Sources & Data