Don Kaufman here. |
VIX just hit 14.12 this morning – its lowest level since mid-December. Hedge funds are sitting on 92,786 short volatility contracts, the most since September 2022. |
Everyone's celebrating "Goldilocks markets" and Nvidia earnings that didn't kill anyone. |
And I just bet against the bond market. |
While you're all getting comfortable with this sleepy volatility environment, I'm risking 91 cents to potentially make over four bucks on TLT collapsing. |
Yeah, you heard that right. I put on an 85/80 put spread with 50 days left yesterday, betting Treasury bonds are about to get smoked. |
Most of you are gonna hate this trade. It doesn't fit my usual in-and-out spread category. |
It's not following the "rules." And frankly, I don't typically send out trades like this because I don't want to hear people b*tch about it when it doesn't make money in three days. |
But here's the thing – I think interest rates are going higher, and it doesn't matter what the damn Fed does. |
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The "Short Bus of the Yield Curve" |
Look, the Fed's gonna cut rates. |
That's the short end of the curve – what I like to call the short bus of the curve. (Yeah, I said it. You can write a letter to HR. That's me, by the way. I've also declared myself head of legal.) |
But cutting short-term rates while everything they're doing is spend, spend, spend? |
The bond market's gonna get pissed at some point. And when that happens, these long-term Treasury bonds are going to get absolutely demolished. |
The TLT tracks 20+ year Treasury bonds. When rates go up, bond prices go down. Simple math. |
And with GDP coming in at 3.3% this morning – seriously, why are we cutting rates again? – the writing's on the wall. |
Why I'm Taking This Shot |
This is the kind of trade where I risk one to make four. |
I want to take shots where I have a good feel and good upside potential. Period. |
Here's my thesis: We're 50 days away from a bond market that realizes all this spending has to be financed somehow. China trade deals, infrastructure spending, whatever Trump's cooking up – somebody's gotta buy all these bonds the government's issuing. |
And when the market figures out that appetite isn't infinite? TLT goes from 94 to 80 real quick. |
The Setup That Nobody Wants |
I paid 91 cents for something that could be worth over $4 if I'm right. That's a lower probability trade, but the risk-reward is exactly where I want it. |
This isn't your typical 30% gain in three days setup. This is a "close your eyes and see where we are in 50 days" kind of play. Complete judgment call on my behalf. |
Look around – VIX at December lows, everyone short volatility, Nvidia earnings that were basically a non-event despite $12 expected moves. When's the last time you saw this much complacency? |
That's when you take the contrarian shot. |
Managing the Hate Mail |
I know what's coming. "This doesn't follow your system." "Why aren't you sticking to in-and-out spreads?" "I thought we only held trades for a few weeks." |
Here's the reality: Great opportunities don't always fit into neat categories. Sometimes you see a setup that screams at you, and you have to be willing to step outside your comfort zone. |
The bond market thinks the Fed cutting short-term rates solves everything. I think they're dead wrong. And I'm willing to risk 91 cents to prove it. |
What This Means for You |
If you're following this trade, understand what you're getting into. This isn't a quick flip. This is a 50-day commitment to a thesis that most people think is crazy. |
But here's what I know: When VIX is at December lows and everyone's comfortable, that's exactly when the next move happens. And it's usually not the move everyone expects. |
Markets are gonna get uncomfortable again. The question is whether you're positioned for it or sitting there wondering what happened when TLT starts cratering. |
I'm betting on uncomfortable. And at 91 cents for a $4+ potential payoff? I'll take that shot all day long. |
By the way, I put this trade on yesterday in the TheoTrade Main Chatroom, if you're not a subscriber and would like in—click here to get started. |
To your success, |
Don Kaufman |
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Upcoming Live Training | Target Hospitality Corp (TH) is seeing massive call volume today. How massive? Well on an average day it will trade 117 calls. Today? Over 8,700 calls have traded by 12 pm ET. | Most traders didn't even see it happen. But Brandon's Ghost Prints Console did… | And today at 2 pm ET Brandon is going over the biggest trades he sees happening in the options market. | It's 100% free to attend, click here to RSVP |
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Catalyst Calendar | | | | Tomorrow PCE data comes out, that's personal income and outlays. It's the Fed's inflationary indicator of choice. Can you imagine if that comes in hot, those probabilities are gonna change. There's still an 85% chance of a Fed rate cut in September. Why are we cutting interest rates with GDP at +3.3%? | Join Garrett Baldwin at 8:45 AM ET as he breaks the data down and shares what's in play for Friday. | Click here to RSVP |
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