Friday, December 23, 2011

TLT vol and skew selling off

If you think central banks continue to ease (QE, USD swap lines, LTRO, ... ) taking a stab at treasuries to the upside through calls is becoming fairly cheap. Also skew is selling off, which sets up nicely for call spread . Historically as skew sells off, treasuries tend to rally shortly after. Probably just a coincidence, but worth noting.




note: Skew is the difference between puts and calls on an implied vol basis. I usually look at +1/-1 sigma ivol as it normalizes moves across asset classes. (a 1% move in gold is less likely than a 1% move in silver).

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