Message-ID: <17842087.1075862674507.JavaMail.evans@thyme> Date: Mon, 26 Nov 2001 07:31:07 -0800 (PST) From: pru-gff-cbot@att.net To: pru-gff-cbot@att.net Subject: fyi: TYZ/TYH ROLL SHOULD NARROW/Roll longs now Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jon and Warren X-To: Inv Weekly X-cc: X-bcc: X-Folder: \HARORA (Non-Privileged)\Arora, Harry\Inbox X-Origin: Arora-H X-FileName: HARORA (Non-Privileged).pst Subject: TYZ/TYH ROLL SHOULD NARROW/Roll longs now Date sent: Mon, 26 Nov 2001 15:24:12 +0000 Recommendation: Roll long TYZs now at 39/32 or roll short TYZ later in week 2 to 3/32 lower. Rationale: The TYZ/TYH roll will be impacted by a number of factors. Most important, we believe, will be changes in the contract's cheapest-to-deliver caused by market movements. Changes in CTD will change the amount of net positive carry that is the primary determinant of the TYZ/TYH roll's value. For example, The TYZ/TYH roll priced using the 6.5% 2/10 has 35.75/32 of net carry, while the roll priced with the 4.7% 11/08 has only 28.5/32 of net carry. |------------+--------+--------+--------| |TYZ/TYH |TYZ est.|Net |Est. | |Cheapest- |CTD |positive|TYH/TYZ | |to-Deliver |switch |carry |roll | | |price |(32) |(32) | |------------+--------+--------+--------| |4.7 11/08 | 111-00| 23.50| 33.0| |------------+--------+--------+--------| |5.5 5/09 | 109-00| 28.50| 36.0| |------------+--------+--------+--------| |6.0 8/09 | 106-16| 32.25| 37.5| |------------+--------+--------+--------| |6.5 2/10 | current| 35.75| 39.0| |------------+--------+--------+--------| |5.7 8/10 | 103-16| 30.50| 37.5| |------------+--------+--------+--------| Assumes term repo for TYZ at 1.9% and 1.8% for TYH. Switch prices are estimates and can vary greatly due to changes in CTD yield spreads. TYZ/TYH Option Value In addition to changes in net carry, the spread will also be impacted by changes in the contracts' net option value. Implied volatility on TYH options rose 150 basis points during the previous week. The net option value, (TYZ option value-TYH option value) is6.5/32. A 100 bps change in TYH options' implied volatility should impact TYZ/TYH roll by roughly 1.2/32 TYZ/TYH 60-day Spread History Current 39/32 Average 33/32 High 39/32 Low 33+/32 Good Luck and Take Care ======================================= Jon and Warren at the CBOT 312-987-5970 or 800-547-3587, 312-347-5061 ======================================= This report has been prepared for informational purposes only. It does not constitute an offer, recommendation or solicitation to buy or sell any securities. It is based on information generally available to the public from sources believed to be reliable. No representation is made that the information is accurate or complete or that any returns indicated will be achieved. Past performance is not indicative of future results. Price and availability are subject to change without notice. Additional information is available upon request. =======================================