Market: 30 Yr. US T-Bonds April Options trade based on the June Futures.
Tick value: 1/64th = $15.625
Trade description: Long Strangle
Max risk: $328.125
Profit potential: theoretically unlimited. Our target is about $700 giving us 2:1

Buy April T-Bond 113 call and one April T-Bond 112 put for 21/64th ($328.125)or less to open a position.

Both the stock and Bond markets have been anticipating this weeks FOMC meeting for months now. Both markets have been foolishly hoping for a rate cut. Only a catastrophic event like the stock market dropping 25% or something similar would result in the Fed. lowering rates. Frankly we believe that if the Fed. does anything this year it will be to raise rates again not lower them. Inflation is a greater threat at this time than the housing bubble. This trade is a simple low risk way to be able to catch the next move in bonds regardless of what direction they go. We expect we will exercise which ever side of the trade ends up in the money and then having a June futures contract for a few days or weeks after that.



Profit Goal
Or profit goal would be a move to either 111 or 114. If we meet that objective the profit will be 43 points ($671.875) on our $328 risk giving you about 2:1 on your money. Our break even points assuming a 21 point fill are 113-11 and 111-21.

Risk Analysis
Max risk, before commissions and fees, and assuming a 21 point fill, is $328.125. This occurs at expiration with T-Bonds trading between 113 and 112.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.