Some bets looking for further rise in rates

The alerts from top to bottom are showing a seller of Sep. 30yr. 120 calls today. Starting around 8:23 a.m.c.s.t.Goldman Sachs desk started selling these calls. The initial alert was a sale of about 1,000 Sep. 120calls at a price of .55 (center dial with stylus pointing to price) the futures were trading around 11602 at the time and that is where option market makers offset the risk of being long the calls ( left dial). The trade resulted in a volatility reading of 16.63% (right dial). Subsequently they sold more calls up until about 8:59 and vol.was forced lower. Interestingly during this time there was some rather substantial put buying and the volatility was rising on the put options while falling on the calls. For example in 5yr. options one dealer bought 1,000 Sep. 114 puts which resulted in a volatility of 7.14% on the day up from 7% settlement on Friday. In 10yr. options Sep. 115 puts were bought 1,000 times at a price of 1'01 covered against a futures level of 11605, resulting in a vol. reading of 11.19% vs 11.08% as of fridays close.

Note it is not a one way street as we have so far insinuated. As a matter of fact In 30yr. options One dealer bought 5,000 Sep. 126 calls today, and another dealer bought 3,000 vs. selling 1,500 Aug. 119 calls. But over all I would say going into Bernankes testimony tomorrow there are more defensive positions being taken in case rates continue to rise. Currently the 10yr. yields have moved a tad lower since these alerts occurred and futures prices are higher. With the 30yr. future now trading 116'11/11.5 the Cash yld is 4.51%, with Sep. 10yr. futures @ 11614.5 the yield is 3.65%, with the Sep. 5yr. futures @ 11509.25 the yield is 2.49%, and with Sep. 2yr. future 10811.25 the cash yield is 1.00%.

Note from top alert down the futures prices were rising while the option price stayed the same. This resulted in ever lower levels of volatility.

• Accutic alerts highlight the cost of option trading and which way dealers are positioning

• Accutic alerts often provide clues as to market over all direction

• Alerts are available by going to www.accutic.net and clicking the join us choice on the menu.