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Bullish Case: STIP's historical return surface indicates strengthened likelihood of gains over one-year holding periods, driven by potential institutional interest in TIPS amidst economic stability. Implied volatility suggests that market fears may be overblown, indicating stronger demand for STIP due to increased inflation concerns.

Bearish Case: Elevated short-term implied volatility indicates significant market uncertainty. If economic conditions worsen, or interest rates increase, institutional outflows from TIPS could accelerate, leading to a target price of $95. Historical returns suggest vulnerability to short-term losses.

Potential Outcomes:

1. Stagnation around $99.50 (50%): Limited historical movements.

2. Upside to $102 (30%): Economic stability supports returns.

3. Downside to $95 (20%): Increased volatility and risk aversion lead to selling pressure.

Trading Oracle: Consider a bearish credit spread by selling STIP 09/20/2024 100P and buying 99P, capitalizing on elevated implied volatility. This strategy offers a high probability of profit as markets calm down. Adjust position if implied volatility collapses significantly.

August 20, 2024