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(October 14, 1997) FINANCIAL
INSTRUMENTS: T-BONDS–Tuesday was a fairly quiet day in the
bond futures market after being closed over the Columbus holiday.
The December U.S. bond future finished up 27/32 apparently on the
idea that the economy is slowing down and that the Federal Reserve
will have little reason to raise rates anytime soon. The paranoia
over interest rates is beginning to be quite humorous and somewhat
tiring because it seems to change by the day. On Friday, the
general opinion was that the Fed was going to have to raise rates
by the end of the year due to the PPI number, now people appear
confident that the Federal Reserve won't. In my opinion, the Fed
will not raise rates at the next FOMC meeting or during the
Christmas season, even if there is some sign of inflation. The
reason behind my thinking is because retail sales, production and
inventories are usually built up to accommodate the holiday
season.
So, with that said, bond futures traders are awaiting
retail sales on Wednesday (expected to be 0.0% versus prior 0.4%).
LaSalle Street is apparently expecting a softer than expected
retail sales figure that will push the December bond future up
higher before the more important September Consumer Price Index is
released on Thursday morning (expected median forecast is about
0.3% versus prior 0.1%).
Last week's recommendation of buying the
November 115/117 strangle for 59/64 or $921.88 was favorable for a
short period of time on Friday, but then the December bond future
came back in between the 115/117 band. As of the close on Tuesday,
the 115/117 strangle was worth 46/64. I am almost tempted to
recommend holding onto this strangle because I still think it has
potential. However, it has served the purpose that it was intended
for and the time decay is getting expensive, so I am going to
recommend exiting this position. Give me a call for volatility and
pricing numbers.
Ole Rollag
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