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US Debt Down Grade Effects | Interest Rates Effect on Option Prices | US Treasury Yield Curve Dis-inverting? | US Debt Massive Expansion

By Derek Moore

Show Summary:

Derek Moore and Jay Pestrichelli are back at it discussing how higher interest rates have impacted the price of call and put options. They use some examples of what happens to options prices due to rates and dividends. Then they discuss the recent rise in long term treasury rates, the downgrade of US Treasury debt, and what if any effect the US Treasury issuing massive amounts of new treasury bonds into the market may have. Exploring the 36-month drawdown in the US Aggregate Bond Index compared to other periods. Finally, they check in on how the 3rd year of a presidential cycle is going and then move on to some recommendations.   

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 Topics Include:

  • What effect do higher rates have on option premiums?
  • How are dividends factored into the prices of options?
  • Delving into examples of the value of cost of carry interest rates into call prices
  • The longer end of the treasury curve includes 10 years to 20 years out.
  • More supply of US Treasury bonds issued by the treasury causing higher rates due to increased supply.
  • Best and worst market months historically during the 3rd year of the US Presidential cycle 
  • Size of net interest payments expected over the next year.
  • US State and Local income tax receipts falling?
  • How net interest debt payments are now larger than Social Security, Defense, and Medicare/Medicaid
  • Does the US Debt downgrade matter?
  • How sovereign debt is a relative game as many countries have growing debt to GDP.
  • The US Aggregate Bond Index is still in 36 months and counting drawdown due to rising rates.
  • Will the US treasury curve un-invert?
  • Debating whether a curve reflating involves lower short rates or long rates rising?
  • Bill Gross bearish on 10-year bonds believing curve may dis-invert by 10 year rising

Mentioned in this Episode:

Cheapest (SPX) PUT Protection You've Ever Seen? | S&P 500 Index Rebalancing | Bank of Japan Hawkishness 

Does Inflation Matter? | Make More by Losing Less? | Volatility and Cost of Hedging | Someone Buys a lot of VIX Calls

Jay Pestrichelli’s book Buy and Hedge 

 Derek’s new book on public speaking Effortless Public Speaking 

Derek Moore’s book Broken Pie Chart 

Contact Derek derek.moore@zegafinancial.com