profit from the fed

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bob5

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i want to make an aggressive trade on the fed not raising rates or only .25, enough to still disappoint the market. what is the best trade? i am looking at RTPIX - profunds 125% inverse the price of the 30 year (and buy it on margin). any other suggestions?
 
I'm generally of the opinion that if you don't know HOW to express your opinions, they might not be worth expressing.
 
Options on Fed Funds or Eurodollar futures have nearly infinite leverage and you can express your bet in as aggressive a way as your broker will allow.

I am totally, completely, utterly in agreement with HoldSide's pithy comment, however.
 
I'll throw another idea out there and that is options on the iShares Lehman 20+ Year Treas Bond (TLT): http://finance.yahoo.com/q/op?s=TLT
 
bob5 Wrote:
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> i want to make an aggressive trade on the fed not
> raising rates or only .25, enough to still
> disappoint the market. what is the best trade? i
> am looking at RTPIX - profunds 125% inverse the
> price of the 30 year (and buy it on margin). any
> other suggestions?


I'd love to be able to profit off of a bet that the Fed won't raise rates as well. My point being, if you don't even know what the market expects the Fed to do, I wouldn't be getting into positions: Then again, its your money (for now).
 
i do understand...the futures are expecting about a .45% cut (obviously not going to happen) but basically closer to .50 then .25. if .25 is priced in, and i feel that .50 absolutely will not happen, what is the best trade? i don't have a futures trading account as joey d mentioned otherwise that would be the trade. let me ask one more question to really show my ignorance: the 30 yr has a higher duration but hasn't the t-bill been more volatile recently? if the fed doesn't raise which end if the yield curve would move more? (front up closer to flat or long up and steepen?)
 
let's say i talked to uncle ben last night and he said they won't raise.50 (or more) and they won't issue a statement indicating that future rate cuts are even likely. with this hypothetical information, is there a low risk high return trade?
 
We have to get you guys thinking like finance professionals not like the college investment club.

1) If you want to make a bet on a short rate, make a bet on a short rate not the 20 yr bond or the 30 yr bond. Using duration as a leverage and taking on basis risk is just not what pros do. You can get whatever leverage floats your boat betting directly on the short rate move.

2) Paying someone else (like Profunds or iShares) to do some completely easy financial engineering is silly. If you can't handle the size of a ED or FF contract, this game is too big for you and you should stay out of it.
 
bob5 Wrote:
-------------------------------------------------------
> let's say i talked to uncle ben last night and he
> said they won't raise.50 (or more) and they won't
> issue a statement indicating that future rate cuts
> are even likely. with this hypothetical
> information, is there a low risk high return
> trade?

Your assignment for today is to go to the CBOT website and figure out how you would make such a bet using Fed Funds futures options.

Then you can go to the CME website and figure out how you would make it with ED options.

Then you can figure out why those are different and which would be better.
 
bob5 Wrote:
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> i do understand...the futures are expecting about
> a .45% cut

How do you know this?
 
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