sms@exodus.UUCP (Stephe Sutor) (05/13/84)
Are there ways to profit from incoming high interest rates? Buying bonds is no good if you assume rates are going higher. Are there markets where puts and calls are sold on T-bills or the like?
hdt@sunybcs.UUCP (Howard D. Trachtman) (05/15/84)
>Are there ways to profit from incoming high interest rates? >Buying bonds is no good if you assume rates are going higher. >Are there markets where puts and calls are sold on T-bills or the like? Sure. I've been strongly advocating that people wanting to get a new mortgage should get a variable rate mortgage (now at about 11.2 rather than 10.5 a little while ago) instead of a conventional (~14 last I checked, and shorting in the open market the GNMA (ginnae maes) [government backed mortgage bond]. Unfortunately, you need to deal in about $100,000 principal, but the margin rates are very low (from 5% to 10/15% depending on the security, your broker, and your equity). You need $5000 to trade any amount of commodities, and probably 50-100K of assets for a reputable broker to take on your account. I'm only looking at Barron's now, but there are indeed puts and calls on Us Treasury Bonds. Obviously, if you expect interest rates to go up, you expect bonds to fall and want to buy a put. Unfortunately, although volume is relatively high, I consider the premiums fairly high: Sept84 62 strike call 1 13/64 (off 38/64) Sept84 62 stike put 2 1/64 (up 1 27/64) !!! nice %age move the June62 put did even better, going from 5/64 to 54/64 Note that these options are in points based on $100,000. WARNING: I didn't think about this particular stategy much, but you might consider buying 5 Sept84 64 puts at 3 39/64 and writing coverted 2 (or 3) Sept84 62 puts at 2 16/64. The spread here looks attractive, but I'm pretty bearish on the securities. (ie. expect interest rates to continue to go up, but not by a lot). Interesting point: although interest rates have been rising a lot lately, the utility stocks have gone up a good amount (interpolation from looking at the utility index in the Wall Street Journal last Friday.) In sum, your best be it do first get about $10,000 that you are willing to throw away (and I mean that literally), and contact a good broker (and there are a lot of bad ones), explain what you want to take, listen to their advice, and TRADE FOR YOUR ACCOUNT. See my next article for details... Sept84 60 strike put -- Howard D. Trachtman SUNY/Buffalo allegra!{rocksvax|watmath}!sunybcs!hdt (UUCP) {watmath preferred} hdt@MIT-MC.ARPA (ARPA) US Snail: 2080 Niagara Falls Blvd./Tonawanda, NY 14150-5545 Phone: 716-693-3076 home; 716-826-0774 work
eder@ssc-vax.UUCP (05/17/84)
17 May 1984
If you believe interest rates are going up, there is a way to make a profit
on the information. The price of existing interest-bearing securities
varies inversely with interest rates. For example, an 8% treasury bond will
sell for 50% of face value when interest rates are at 16%. This raises the
effective yeild of the bond to:
8% / 50% = 16%.
What you have to do is contract to deliver an interest bearing security
at some date in the future. You do not have to own the security. If
interest rates increase in the interim, you will be able to buy the security
for less than the contract price, and pocket the difference.
An organized activity exists for this sort of thing, called the 'futures markets'.
Most speculators never are involved in the actual commodity, which ranges
from such things as 1000 bushels of wheat to 42000 gal of No. 2 heating oil
to $100 000 face value of Treasury Bonds. What they do is buy and sell
one half of a contract. One half is the obligation to buy the commodity,
the other half is the obligation to sell. Speculators sell the contract
before the delivery date to someone who actually needs it, or another
speculator. An example of someone who needs this stuff is a wheat farmer
on one side and a bakery on the other.
Commodities trading can be done on small margins (like 10%), which means
a ten percent movement in the underlying commodity can double your money
or wipe you out. This is like horse racing, but a little slower.tbul@trsvax.UUCP (05/24/84)
#R:exodus:-15800:trsvax:52900005:000:654 trsvax!tbul May 24 12:06:00 1984 Why not try something as simple as a money market fund? You can place your money there, enjoy free checking, telephone switching, rates currently about 10%, and good liquidity. Should you need the money, it is just waiting for you to withdraw it. Remember, once you are sure (as sure as one can be) that interest rates are going down, then you can transfer the cash to the bond market. Thomas Bulkowski ............................................................................ "If I have seen farther than others it is because I have stood on the shoulders of giants." - Sir Issac Newton allegra!convax!ctvax!trsvax!tbul Fort Worth, Texas