Fix inflation or hurt banks? Trade idea on TLT
The turmoil in the banking industry continued last week. It started with the rescue of 166-year-old Credit Suisse by its bigger Swiss rival, UBS. Then there was First Republic Bank. Silicon Valley Bank’s leftovers were picked over by First Citizens. Then Deutsche Bank’s shares slid as European investors shifted out of banking shares and toward defensive sectors over rising recession concerns.
The Federal Reserve made it clear with last Wednesday’s 0.25% rate hike that its priority is fighting 40-year high levels of inflation. But no matter how much Chair Powell suggests the banking system is “sound and resilient”, the reality is that things have changed and apparently the market does not give them any credit. That is why people say the Fed has no credibility left. Bond traders are already betting on a rate cut by June. The basic problem for chief JPow now is that the policy for taming inflation and the policy for helping banks point in opposite directions, and the real danger is that they end up with the worst of both worlds: a full-blown crisis that triggers a recession.
That would force central banks to abandon the inflation fight before it’s finished, as they rush to shore up a teetering financial system. That means reducing rates too fast and too early. That is why traders are anticipating a rate cut as early as this summer!
And that is why Ardi has a very aggressive trade on TLT with a risk reversal or a Bull Spread. This is a 10 to 1 or 20 to 1 trade opportunity I am considering to take. A $200k risk can result in a $2 million profit.
If you want to know what the trade is in detail, make sure to follow Ardi on Twitter.
Today, Brian and I had some amazing trades, me on AMD and he on NVDA. Ardi also came up with a nice short on an AAPL idea that I took advantage of. He saw a double top and suggested a short on Apple with calls at $160, and I took it for a nice $900 profit. If you want to learn more about our trades, make sure to check out our recap here.
If you are interested to learn more about how Ardi goes about executing his trades, please check out his options trading course in the Trading Terminal Academy and use TTSTART code for FREE access.
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