Trade Idea - US Treasury Bond (USH) Puts financed with short US 5-Year (FVH) Puts

January 13, 2020 09:09 AM
Futures Options Trade Idea

Futures Options Trade Idea


US Treasury Bond (USH) Puts vs. short US 5-Year (FVH) Puts


Trade Idea: 


USH 155 Puts (-22.8 Delta) versus a vega weighted sale of FVH 118.25 Puts (25.3 % delta) with 39.7 days to expiry.

If you expect US Treasury Bonds to continue to underperform the shorter end of the curve (US CPI numbers tomorrow as well), maybe look to buy USH 155 Puts (-22.8 Delta) versus a vega weighted sale of FVH 118.25 Puts (25.3 % delta). The switch should come for a small credit, assuming a current vega weighting of 4.5 times.

Recent reversal trend looks pretty steady


The 2% support level in US 10-Years (TYH) can be used to create a similar trade, maybe check out the USH 155 Puts(-22.8 Delta) vs TYH 128 Puts (23.6% Delta), it should trade around flat. Low volatility in US 2-Years makes them unattractive currently as a sale currently. The skew in USH also looks pretty useful for Risk Reversal structures.


Just remember, this is a trade idea only and not investment advice. Do your own research and consider your risk tolerance. Know your risk.

Disclosure: We may have trading positions in the same or highly correlated trading structures. 



About the Author

George Austin is a co-founder of Pricing Monkey. Pricing Monkey provides financial derivative pricing and analytics software that helps improve understanding of complex derivative positions.