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TP Says...
Friday, November 8, 2019
10-year yields spiked higher yesterday as the bond world took some news about US-China trade as bullish for the economy, which would mean less downward pressure on rates to pull the economy out of a potential recession.  With everything looking right with the world, /ZB, /ZN and /GC dropped, while /CL and, of course, /ES rallied.  But a higher 10-year rate isn’t good news for everyone, particularly homebuyers whose mortgages are based on it.  That’s why XHB, the homebuilder ETF, dropped on the news.  XHB had been trading in range for the past week after rallying for most of October.  And if expectations of a stronger economy don’t pan out, and 10-year rates stay relatively high, that could push XHB even lower.  XHB is still near its 47.20 all-time high, so a contrarian trader could consider a bearish trade in it.  If you are bearish on XHB, the long put vertical that’s short the 44 put and long the 46 put in the Dec expiration with 42 DTE is a bearish strategy that has a 63% prob of making 50% of its max profit before expiry and that generates $.07 of positive daily theta.
 
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