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From: hdt@sunybcs.UUCP (Howard D. Trachtman)
Newsgroups: net.invest
Subject: Re: How to profit with interest
Message-ID: <1607@sunybcs.UUCP>
Date: Mon, 14-May-84 21:14:18 EDT
Article-I.D.: sunybcs.1607
Posted: Mon May 14 21:14:18 1984
Date-Received: Wed, 16-May-84 07:34:23 EDT
Organization: SUNY/Buffalo Computer Science
Lines: 52


>Are there ways to profit from incoming high interest rates?
>Buying bonds is no good if you assume rates are going higher.
>Are there markets where puts and calls are sold on T-bills or the like?

Sure.  I've been strongly advocating that people wanting to get a new
mortgage should get a variable rate mortgage (now at about 11.2 rather
than 10.5 a little while ago) instead of a conventional (~14 last I
checked, and shorting in the open market the GNMA (ginnae maes)
[government backed mortgage bond]. Unfortunately, you need to deal in
about $100,000 principal, but the margin rates are very low (from 5%
to 10/15% depending on the security, your broker, and your equity).
You need $5000 to trade any amount of commodities, and probably 50-100K
of assets for a reputable broker to take on your account.
I'm only looking at Barron's now, but there are indeed puts and calls
on Us Treasury Bonds.  Obviously, if you expect interest rates to go
up, you expect bonds to fall and want to buy a put.  Unfortunately, although
volume is relatively high, I consider the premiums fairly high:
Sept84 62 strike call  1 13/64  (off 38/64)
Sept84 62 stike  put   2 1/64   (up 1 27/64) !!! nice %age move
  the June62 put did even better, going from 5/64 to 54/64

Note that these options are in points based on $100,000.
WARNING: I didn't think about this particular stategy much, but
you might consider buying 5 Sept84 64 puts at 3 39/64 and
writing coverted 2 (or 3) Sept84 62 puts at 2 16/64.  The
spread here looks attractive, but I'm pretty bearish on the  
securities. (ie. expect interest rates to continue to go up,
but not by a lot).

Interesting point: although interest rates have been rising a lot
lately, the utility stocks have gone up a good amount (interpolation
from looking at the utility index in the Wall Street Journal last
Friday.)

In sum, your best be it do first get about $10,000 that you are
willing to throw away (and I mean that literally), and contact 
a good broker (and there are a lot of bad ones), explain what
you want to take, listen to their advice, and TRADE FOR YOUR
ACCOUNT.  See my next article for details...




 Sept84 60 strike put   

-- 
Howard D. Trachtman SUNY/Buffalo
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