Short term
Trade view / 14 September 2016 at 8:35 GMT

Selling junk in high-yield bonds

Product Manager, Options Trader, Educator
Instrument: HYG:arcx
Price target:
Market price:

The high-yield bond market has been relatively strong and shares of the iShares Iboxx ETF (HYG) have been on fire for the last several months, gaining some 17% since March. 

A pause of this rally is in the works and we expect the distressed debt to take a breather in the next four to five weeks. This gives an opportunity to collect some credit using a short vertical call spread.

The long-term trend in still unclear as the need for higher yield is still in demand. 

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Source: Saxo Bank
Management and risk description

We are selling this two-point wide bearish vertical call spread in the high-yield bond market. Volatility has increased in the last three days which gives us better premiums.  We only need for the price to trade below $86 for the next four to five weeks to collect on at least 80% of the premium. 

It is a defined risk strategy with limited risk


Underlying Price: $85.41

Trade: SELL -1 Vertical HYG 100 21 OCT 16 86/88 CALL @ $.54 (to open)

Max. gain (expiration) = $.54
Max. loss (expiration) = $1.46
Breakeven(expiration) = $86.54

ROR= 37%

Entry: today, for a credit of $.54 but no less than $.50 per contract.

Stop: no stop.

Target: shares to trade below $86, to capture at least 80% of premium.

Time horizon: four weeks.

— Edited by Michael McKenna

For more on contract options click here.

Non-independent investment research disclaimer applies. Read more
Market Predator Market Predator
Hello Georgio, could you please unveil how do you generate ideas? There are thousands and thousands instruments in SaxoTrader, why exactly HYG? I wish to have this qualification too :)
Georgio Stoev Georgio Stoev
Hi Predator, for the most part through observation of the different asset classes on daily basis. And the Saxo Trader helps me have them all:) So watching through futures, mostly, rates, equity indices, energy, metals, forex and so on. When we have identify an opportunity in a market, then we need to select the product we want to trade => the underlying future, index, option or an ETF (options on ETF) Keeping these very liquid is key. We may offer a ton, but not all products are liquid . Trying to stay away of obscure biotech name no one really is making market in. That simple:)
Georgio Stoev Georgio Stoev
It's a good topic for a webinar or article:) Thanks for following and asking questions
Feders Feders
Hello Georgio, at the moment the market is closed, and with the last traded values I can't sell the call spread for 0.54. When did you get those values?
Georgio Stoev Georgio Stoev
as of last night - not much change at the open now at $0.56
Market Predator Market Predator
@Georgio: please, manage such kind of webinar, there is no doubt this serious topic!


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