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The great bund short (Million Euro Trade)
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Created: by leinster Attachments:1

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The great bund short (Million Euro Trade)

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The great bund short (Million Euro Trade)

So the purpose of this thread is to detail a trade i will be putting on over the next 2 years.

Effectively the 10 Year German Bund trades around .15% whereas the US 10 year trades at 1.92% at time of writing. It should be noted that a portion of this trade i am personally putting into play is a hedge against my own investment mortgage's.

There are many ways to partake in this trade:

FGBL
3BUS
BUND2S
SBU3
X0CV
XOCW
XOCU
DLB

Having researched some of the movements behind these instruments i will be using the X0CW to take this trade placing most of the trade on this instrument.

This is a 15X leveraged fund so not for the fainthearted. Ill be using scaling in for the next 24 months to increase size.

3% of the total trade size is now on and i have a limit order for 2% @ 1.00. I wont be day trading this i will be buying holding and adding as price moves against me until im all in at which point ill be hoping to hold for 5 years.

My target is 25 which is approximately bunds to rise to 2%.

The bund is probably one of the best opportunities there are out there if it can be timed right. Im of the opinion it will be hard to time it so ill scale in until i have enough on and then ride it out.


Last edited by leinster; April 28th, 2015 at 04:59 PM.
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The reason for this selection is as follows a lot of these etfs / derivatives were not available for a long time so i took a random day and evaluated price movement after within the bund context. So in the event of the bund yield was X what was the movement of the bund and the etf's / derivatives within this time period.


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Is there a drag being an inverse leveraged ETF?

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jackbravo View Post
Is there a drag being an inverse leveraged ETF?

There is a cost its certainly not for free I am basing this on my belief the move will when it comes be so dramatic it will more than make up for it. You can see in the image that things do not move in lockstep. I am hoping that scaling in over a period of 2 years will mitigate this somewhat.

To me I believe the yield on bund is too cheap and will pop up over a period that I cannot control.

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a couple remarks :

please read "the big short" from Michael Lewis.

while i do agree with the reasoning behind your strategy, there are a couple things
that can play. you can be 100% right and not be able to get out at the point in time you
want. during the 2009 meltdown, you could be holding an instrument, with intrinsic
value, but if the market was not willing to pay the correct theoretic price, you could
take the benefit.

you are still doing this in moderate scale, but a risk to take into the equation is
counterpart risk. if you go big time against something, you need to make sure, that
the other side is able to honor the contract. during the 2009 meltdown, you were
absolutely ok to hold a CDS, but if the counterpart wasn't able to honor that, the
gain was nothing.

living myself in Europe, my biggest concern, is that the lawmakers, a couple time
they have show sign of creative invention, changing the rules of the game at the
finish. you start off to run a marathon and at 200m of the finish they change the
rules of the game. if you setup your trade, be absolutely sure to never be trapped
into that game (taxation, etc...

Besides of that...
Sounds like a great long term plan...

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rleplae View Post
a couple remarks :

please read "the big short" from Michael Lewis.

while i do agree with the reasoning behind your strategy, there are a couple things
that can play. you can be 100% right and not be able to get out at the point in time you
want. during the 2009 meltdown, you could be holding an instrument, with intrinsic
value, but if the market was not willing to pay the correct theoretic price, you could
take the benefit.

you are still doing this in moderate scale, but a risk to take into the equation is
counterpart risk. if you go big time against something, you need to make sure, that
the other side is able to honor the contract. during the 2009 meltdown, you were
absolutely ok to hold a CDS, but if the counterpart wasn't able to honor that, the
gain was nothing.

living myself in Europe, my biggest concern, is that the lawmakers, a couple time
they have show sign of creative invention, changing the rules of the game at the
finish. you start off to run a marathon and at 200m of the finish they change the
rules of the game. if you setup your trade, be absolutely sure to never be trapped
into that game (taxation, etc...

Besides of that...
Sounds like a great long term plan...

Completely agree about the taxation issue they love to move goal posts around here (Europe). If it works out ill be asking my accountant to advise if its okay on cgt front before selling. Im in belgium but could easily relocate to netherlands.

I did read that book alright hence I will not be using any leverage in the actual position just the implied leverage of the instrument. I'll be putting up full cash for this position (if that makes sense).

http://www.bloomberg.com/news/articles/2015-04-28/europe-s-deflation-specter-moving-on-as-greece-clouds-recovery


Last edited by leinster; April 29th, 2015 at 05:30 AM.
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Things moving fast on this instrument i started buying @ 1.10 and have had to add in some more quickly due to the market increasing in last 2 days to 1.36.

Have added in up to 7.6% on the trade now.

Wishing on a greek meltdown to pop these bonds up so i can add at cheaper prices as im a whore for a sale.

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Added to my initial stake and have now 9.5% on this, big move today X0CW up 9.77% as of writing.

I imagine no ecb activity in market as some government bond desks are closed today for holiday in europe.

Probable ecb to buy it 2moro, wish it would get cheaper so i could really load up as i think im late to this party but desperate to be involved!

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Clearly the central bank in early on the markets this am buying.

Bund looked weak to me so added some more to the position now @ 12% of trade size.

Id suspect i should have been much more aggressive with this @ the start as now trading @ 1.60 nearly 50% from initial posting.

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