Potent Ways to Trade Rising Interest Rates

From Keith Harwood, OptionHotline.com

Finding new themes early in the year is crucial to an investing plan.  We all saw the end-of-the-year flows, and we’ve discussed ad nauseum that the dogs of the DOW is often an investing theme early in the new year.  But, what have we seen this year that can trigger a potential new theme with explosive returns?

First and foremost, I like to look at the VIX to see what the overall market is telling me:

Given this level in the VIX, it’s not a “buy everything market”, but it’s also not a “sell everything” market.  We know that there will be winners and losers in 2022, and one of the central themes already being discussed is the return of interest rate hikes by the FOMC.

One could argue that this is already priced into the market, but one could also argue that this new trend where interest rates are non-zero (or close to it) is just getting started.  When I start hearing about the potential for 6 rate hikes this year, I tend to think that the market is still trying to digest the information.

That’s why my first move is to look at TLT, the ETF representing 20+-year bond prices (so when it goes down, it implies bond yields/interest rates will go higher):

From this, I’m thinking the bond break is getting started, but may JUST be getting started.  Inflation is high, the economy seems to be doing fairly well, and maybe it’s time that we finally reduce the emergency low interest rates put in place during the financial crisis in 2008-2009.  It’s been 13 years.  Perhaps the emergency of the financial crisis is over.

And speaking of financials, when interest rates rise, financial companies tend to perform better!  The spread on interest-bearing products tends to widen as interest rates rise, allowing financial institutions to make more money.  So we turn to the sector that’s been better than any (on a volatility-adjusted basis) over the last 2 weeks, financials:

Given what I’m seeing here, I think this could be a theme all year long.  There will be dips.  There will be rips.  And timing that entry is crucial, but this is a sector that I want to look at after its under-performance for more than a decade.  Now may finally be the time for financials to shine.  And if I can leverage that trend with options, I can hit a home run.

So, please go to https://optionhotline.com to review how I traditionally apply technical signals and probability analysis to my options trades.  As always, if you have any questions, never hesitate to reach out.

Keith Harwood

[email protected]

Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading, https://www.sec.gov/reportspubs/investor-publications/investorpubsautotradinghtm.html
TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.

1. The information provided by the newsletters, trading, training and educational products related to various markets (collectively referred to as the “Services”) is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by TradeWins Publishing (“TradeWins”) a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. The Services are intended to supplement your own research and analysis.

2. TradeWins’ Services are not a solicitation or offer to buy or sell any financial products, and the Services are not intended to provide money management advice or services.

3. Past performance is not necessarily indicative of future results. Trading and investing involve substantial risk. Trading on margin carries a high level of risk, and may not be suitable for all investors. Other than the refund policy detailed elsewhere, TradeWins does not make any guarantee or other promise as to any results that may be obtained from using the Services. No person subscribing for the Services (“Subscriber”) should make any investment decision without first consulting his or her own personal financial adviser, broker or consultant. TradeWins disclaims any and all liability in the event anything contained in the Services proves to be inaccurate, incomplete or unreliable, or results in any investment or other loss by a Subscriber.

4. You should trade or invest only “risk capital” money you can afford to lose. Trading stocks and stock options involves high risk and you can lose the entire principal amount invested or more.

5. All investments carry risk and all trading decisions made by a person remain the responsibility of that person. There is no guarantee that systems, indicators, or trading signals will result in profits or that they will not produce losses. Subscribers should fully understand all risks associated with any kind of trading or investing before engaging in such activities.

6. Some profit examples are based on hypothetical or simulated trading. This means the trades are not actual trades and instead are hypothetical trades based on real market prices at the time the recommendation is disseminated. No actual money is invested, nor are any trades executed. Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. TradeWins makes no representations or warranties that any account will or is likely to achieve profits similar to those shown.

7. No representation is being made that you will achieve profits or the same results as any person providing testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have experienced losses.

8. The author experiences are not typical. The author is an experienced investor and your results will vary depending on risk tolerance, amount of risk capital utilized, size of trading position and other factors. Certain Subscribers may modify the author methods, or modify or ignore the rules or risk parameters, and any such actions are taken entirely at the Subscriber’s own election and for the Subscriber’s own risk.