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Don’t Turn Yourself Around

by Frank Kaberna| Tips & Strategies

Last week’s activity has many traders asking questions: How should markets react to certain real-world events? Is there any correlation between the state of the collective consciousness and the performance of financial instruments? Where do we go from here?

A good plan of action for your trades and investments in times like these could simply be to stay calm. Though exercises such as politics may demand a more passionate approach, activity in your portfolio should maybe not evolve as rapidly as your Twitter news feed.

This isn’t to say that active traders should avoid short-term opportunities, but rather that the more consistent strategy may be to refrain from uprooting long-term investment and trade both sides of a passing moment. Take, for example, the recent activity in interest rates.

Rates in the Short Term (Small Treasury Yield \ S10Y)

Source: dxFeed Index Services (https://indexit.dxfeed.com)

The 10YR Treasury rate, via S10Y futures, has doubled in the last five months as it tears through 1.00%, or $10.00 in S10Y. Contrarians interested in selling into this rally may find that adding the context of the last few years could cloud their judgment.

Rates in the Long Term (Small Treasury Yield \ S10Y)

Source: dxFeed Index Services (https://indexit.dxfeed.com)

The average 10YR Treasury yield over the last three years is 2.00%, $20.00 in S10Y. This fact might lead those looking for mean reversion to find value in the upside. So, what do you do with a market that could have potential for profits from both the long and short side? Well, you can buy AND sell it.

It’s possible to be both bullish and bearish as long as trades are separated into varying timeframes and products permit flexibility. S10Y futures let you trade rates for a margin cost of just $180.* This can allow for a long-term position of a few units with interspersed short-term trades of a single unit.

If your mechanics are sound and your portfolio is organized, you can have ephemeral strategies side-by-side with more persistent opinions all without getting turned around.

 

*Value taken on 1/7/21, per contract, based on OCC initial margin rates

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About Frank Kaberna

Frank Kaberna is the head content strategist at the Small Exchange. He produces everything from brochures to videos that inform on the Small Exchange’s products. After earning a mathematics degree from the University of Michigan, Frank traded interest rates at the Chicago Board of Trade. He then worked on the tastytrade Network as a content producer and on-air talent before landing at the Small Exchange.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

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