With 10 Year Treasury Implied Volatility and Implied Volatility Rank at the lowest levels we’ve seen in years the Research Team decided to investigate the viability of buying premium in these products.
Even with the low Implied Volatility and Implied Volatility Rank, Implied Volatility continues to overstate in these Treasury markets, thus resulting in negative performance for long strangles in /ZN. Although these losses can be reduced by waiting for IV Rank to be below 25% the strategy is still net negative.
However, the problem of starting short in these times is the issue of not getting paid enough to compensate for outlier risk. This is why the only trades that we would employ at these levels of IV are directional trades in interest rates and small shots in long VIX.
As the name of the segment suggests: if there is no fear, there is no trade.