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Picking a Side in the Battle of Yields

Mar 24, 2021

By: Frank Kaberna

Every so often a market reaches an inflection point, and traders ask themselves: is this a flash in the pan or is the landscape actually changing? Examples include the British pound’s decline following the initial Brexit vote (it rebounded) and GameStop stock earlier this year (GME is up around 1,000% YTD*).

The US yield curve is currently in the midst of this exact conundrum as traders debate whether or not 10YR rates will continue to outshine both shorter- and longer-term equivalents.

The Case for Consistency

Only time will tell, of course, if the yield curve moves further into uncharted territory or reverts back to normal. So, which side will you be on? In times like these, consistency can help. Were you selling pound puts in 2016 or buying them? Did you ride the GME wave to new heights or sell shares short?

The Butterfly Spread (2*S10Y-S2Y-S30Y)

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Source: dxFeed Index Services (https://indexit.dxfeed.com)

How to Execute Your Opinion

There are many permutations of yield curve trades with just the Small 2YR, 10YR, and 30YR Yield futures, but the strategy referred to below employs all three - the butterfly spread. Traders thinking that the extreme won’t last can sell it, while trend-followers can buy it.

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A new craze pops up every week, it seems, and keeping your opinions consistent may help you act quicker.

 

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Save Every Time You Trade the Smalls

The Small Exchange has also created a limited number of subscriptions for a one-time payment of $100 that give traders a lifetime of reduced exchange and market data fees when trading the Smalls.

For more information on the Small Exchange’s products and subscription service, visit smallexchange.com. And be sure to check out my new show on tastytrade, Small Stakes, where Pete Mulmat and I will show viewers how to navigate Small Exchange products every Monday-Friday and always on demand.

If you’d like to find out where to trade the Smalls products check out the list of brokers that offer their products, or tastytrade’s preferred broker tastyworks.


*As of 3/18/21

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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