Price Forecast:

Bullish Case: If an economic downturn leads to aggressive interest rate cuts, Treasury demand will surge, pushing IEI prices higher. Implied volatility surfaces suggest a favorable environment for bullish strategies here.

Bearish Case: Continued interest rate hikes and persistent inflation could dampen investor sentiment, leading to reduced demand for Treasury bonds and potential declines in IEI prices, especially given the current flat price action.

Potential Outcomes:

1. Rate cuts (30%);

2. Recession impacts (20%);

3. Elevated inflation persists (15%);

4. Continued rate hikes (25%);

5. Increased Treasury demand from geopolitical tensions (10%).

Trading Oracle: Implement a debit spread by buying calls at $117 and selling at $119. This strategy capitalizes on potential upside from anticipated rate cuts and has favorable risk-reward characteristics with current implied volatility levels. Consider ongoing monitoring of economic indicators for adjustments.

November 19, 2024