Jan 13, 2011. Sell volatility in a managed financial world

Portugal’s bond auction yesterday was anticlimactic as it was supported by China.  It is as if the market has found religion in the idea of  global central planning and a managed financial system.  Such confidence, and the idea of a monetary authority ‘put seller’ has translated into heavy selling of US financial options.  For example, there was a seller of about 50k EDH12 9900p yesterday (mostly covered); EDH12 9900 straddle went from 67 to 64.  March treasury vol again made new recent lows, and what activity has occurred in TYM has also been initiated by sellers. It’s no use standing in front of the option sellers in the short term; I would think the same dynamic would result in flatter calendar spreads in the euro$ curve.
–Another global connection, admittedly a stretch, concerns the ‘haves’ and ‘have nots’.  In Tunisia, there is rioting over lack of jobs and huge food price increases.  In the US, Zales Jewelry (ZLC) rose 30% yesterday on the back of strong holiday sales.  Tiffany (TIF) has run from 40 to 65 in four months.  The global monetary authorities have aided and abetted a commodity price run, the CRB made a new high yesterday and is at 50% retrace of the big fall from 2008 highs. (Oil is above 50%).  Financial assets have also benefited.  The rich get richer (and buy jewelry), but beware of a “Let them eat cake” mindset.  Tunisia is small, but in the US 43 million receive food stamps. While the markets might applaud global financial authorities with subdued volatility, the prospect of increased societal volatility and a centrally planned means of control in response is what concerns me. 

–In terms of good news for US economy, WSJ had a note yesterday that Q1 fiscal year tax revenues had increased 9%.  Perhaps a sign of more sustained growth.  –Today’s news includes PPI expected +0.8 with Core +0.2.  Trade deficit expected $41 B.  Job Claims 405k.  30 year bond auction.

Posted on January 13, 2011 at 6:46 am by alexmanzara · Permalink
In: Eurodollar Options

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