🔴How to Trade Fed Rates Falling to Zero with Eurodollars (w/AK)


It’s not every day that you get a hedge-fund legend like John Burbank telling you how he’s about to make a bunch of money But that’s exactly what he did with real vision when he sat down for an hour-long interview where he discussed his highest conviction trade Right now and some of you after watching that wanted to know more Like what’s the vehicle that he’s using to put that trade on and how you can do the same thing And also what is a euro dollar anyway? So we’re gonna go over all that and more in this week’s episode of real visions. The one thing What’s going on investors 8k here every big trade starts out with the assumption that Somebody else is wrong because if everybody was right Then the markets would be efficient and you throw your money into an index fund and just walk away So what does Burbank think that people are getting wrong? he says that interest rates are gonna go way lower than everyone’s expecting the rates market generally is saying Most of the rate cuts are gonna happen by June in the next year But I think they’re the ending rate is way too low they’re not enough people believe this although it’s only been the last couple months that the Exposure to Euro dollars is positive. There was really no reason to believe in lower rates in a hikes hiking cycle, right and It was only until the middle of last year right people were believed in higher rates so this is a huge shift and forward expectations as Evidenced by rates markets and the question is is it going to go all the way to zero or not? And If you remember two thousand or two thousand seven or eight you just don’t say oh, yeah. It’s at zero No, it’s like a day by day month by month Valuation process until you get to a bottom and usually the bottom is way of, you know farther than anyone expected So basically we’re paying basis. The Fed will do more cuts and quicker than what people are expecting and to bet on it He’s using Eurodollar futures euro dollars tracked a prevailing interest rate on US dollars outside of the US banking system It’s a rate that you might know better as libel and while euro dollars might not be a household name They’re the most widely traded futures contract on the cme. Listen, the euro dollar expert Jeff Schneider talked about well Eurodollar futures pertain to Future expectations for where three-month LIBOR will be and the LIBOR is a London interbank offered rate Which applies to claims on dollars that will be on some bank account balance sheet at some point in the future? So the price of a euro dollar future Tells us what the market expects three months library to be at that point in the future And so it tells us a little bit something about how the market perceives not just current conditions But what the Federal Reserve thinks about current conditions because remember monetary policy Especially at the very short end has a very large effect on where money short money rates are going to be in the future so it’s a combination of very key factors that tells us a lot about current perceptions of the intermediate and even the longer-term future So in other words, the economy doesn’t actually have to fall into a recession The Fed just has to be afraid that it might fall into a recession burbank compares it to betting on the price of a stock versus betting on a company’s actual earnings what I like about betting on With euro dollars and betting on fed futures is that we’re we’re betting on where the actual policy rate is gonna settle It’s really it’s like betting on the earnings like nailing the earnings of an equity But but not having to worry about the multiple and in this case Burbank says that the Fed could get spooked and drive interest rates Down to zero very fast. I think they’re gonna go to zero pretty fast in fact that that would be the choice, right they get there as fast as possible and then discuss you know negative rates or some other, you know rate targeting or whatever, so So it’s one of those things like they either Do have to do this stuff or they don’t and if they do I think they go to zero which case the betting on zero scenario you can make Real serious returns and obviously the sooner it happens the better. Okay. So let’s say you agree with Burbank How do you actually put on the trade while the trade might look complicated? It’s actually pretty simple Eurodollar futures are priced at a hundred minus the implied interest rate or the expiration date December 2020 futures are currently around ninety eight forty that means that the market expects the three-month LIBOR to be 1.6 percent when the future is settled you can buy the futures outright meaning you expect the price to rise and the forward interest rate To fall or if you want to hedge your risk and increase your returns even more you could buy calls on these futures which is what Burbank talks about remember a call gives you the right to buy an underlying asset in a certain time period so in This case you can buy the 99 strike calls on the 20 20 December futures These will start to make money Once the futures rise above 9 9 or in other words when the expected interest rate falls below 1% but because you paid for that option the price of the futures have to rise above that strike price by more than what you paid for you to make a profit and where it gets interesting is when you think about Position sizing because these aren’t gonna be a normal part of your portfolio So you can’t use standard asset allocation in this case Burbank says you want to go big and then the question is well, how levered up are you? You know, how confident is bet? Usually they’re they were talking about like a getting a 20% or 30% Return in a really good scenario and I’m talking about like getting a you know a TEDx return in a scenario and so in in a way I’m like bringing like a risk seeking mindset to this trade for a lot of people who don’t you know aren’t used to having this maybe optionality or Aren’t seeking this kind of risk. I now believe I now can understand why Druckenmiller could have made so much money, you know in these times right a risk seeking mentality in an incredibly liquid Leverageable, you know area I get it. I get that now with the potential for such massive returns. It’s no wonder that This is his highest conviction trade. But remember these are all just ideas This is not financial advice options and especially options on futures Are not for everybody if you want to follow John into this trade then make sure you do your own research first that way you know what you’re getting into and a great place to start your research is with all our interviews with John Burbank and you could Watch them on real vision. I’ll see you next week You

23 thoughts on “🔴How to Trade Fed Rates Falling to Zero with Eurodollars (w/AK)

  1. So the market is already pricing in sizable cuts, but he thinks it will get to zero even faster? And his reason is "he thinks it will happen"? Not too convincing – if anything makes me want to bet the other side.

  2. not only are they going to zero but -2.x for sure, because the fed needs 5 bullets to fight a recession and they only have 2.x the question is, who will bail out the fed next time around?

  3. trading is nothing other than speculative gambling. while they make money our economy is falling apart for the rest of us.

  4. THIS IS EXACTLY HOW TO DO THE TRADE:

    You want to buy CALLs on /GEZ19

    Safe trade: Strike price 98.5 with around 400 days till expiration (costs about $500 per contract)

    Risk-on trade: Strike price 98.75 with around 320 days till expiration (costs around $350 per contract)

    You could buy less time, if you know how to trade in and out on the way up…extra risky, but more profitable.

    Get in ASAP, and close the trade when the FED funds rate = 0

    These option prices move fast, and you want a good entry point. Today is a good day to get in. Remember these options cut-both-ways. Big gains on up days. Savage losses on down days. Don't freak out, and don't get greedy. This is a great trade. I expect to make 10X this year.

    I recommend Tastyworks for trading options, they make it super easy, but any brokerage can do this trade. (Maybe not Robinhood) You need futures trading permission to do this trade. It is separate from margin and options trading permission. You can't even buy CALLs on futures without getting permission. Call your broker and they will help you find the online "enable futures" button / process.

    Go to younghustler.com for more information on how options work, and videos on how to set up an account with Tastyworks.

    Godspeed.

  5. I don’t understand how a channel can both post videos discussing how the world economy is falling apart and also recommend we buy paper products like currency options?

  6. Or just buy mid tier gold and silver miners and just wait for a collapse. Gold will skyrocket and you will get that 10x return in gold stocks. My humble opinion.

  7. This sounds like a pretty dumb bet.
    The fed would have to push the interest rate below 1 % before Dec 2020, then push it even further down to pay for the interest you pay to leverage and the cost of the call option.
    I'm not so sure about this.

    I don't think the fed has started to cut due to weak economic data, rather to get inflation going, not so sure that would be to cut down 2 % within the next 1 ½ years.

  8. It’s obvious this is the beginning of the path to zero. We never got out of the 2’s in this cycle. Look at the Feds fund rate chart since 1980. This is on the lowering trend line.

  9. the fed seems to be hellbent on driving interest rates ever lower, driving people into ever riskier bets.

  10. Calls, puts, options, futures, and all the rest of these, are just crooked schemes to extort money from the legitimate investments. The purpose of stocks is to enter into a partnership with legitimate company's and if the company does well, you realize a profit. Everything else is scamming and should be abolished. People who have become insanely rich, using these crooked scimming schemes, have done so on the backs of legitimate investors, and have contributed nothing to society. Yes I am talking to you Ray Dalio, Jim Rogers, George Soros and all the rest of you criminals, and anyone else who plays these none productive games.

  11. It doesn't matter none of this matters you're going to win you're going to lose your going to break even you got to figure out what the big boys are doing you cannot do this yourself you have to outguess the big boys they control it they move it

  12. The cryptocurrency market will experience a market optimism in 2020, as not only Bitcoin, but all the major cryptocurrencies will also experience an upward shift. The governments and the central banks will embrace the digital currencies; hence the demand should be more. So I want to purchase some more Bitcoin in advance… and bet on the side that always wins. That is a pretty safe bet, although I was able to increase my 2 Bitcoin to 30 Bitcoin in a very short amount of time with trades that yielded consistent winnings which was done with the help of Gérard Barrientos who is a Pro Trader and has been helping beginners in crypto investors showing them ways to trade their Bitcoin, he is down to earth and always ready to serve, I made profits, and it was worth it. I urge all of you to contact him now on for more assistance e-mail; [email protected] for your signals and tips on how to quickly create a work strategy to increase your portfolio and earn profit Consistent and consistent. Still a big fan and I like your channel but had to get this off my chest.

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