Why Your Mortgage Rate Went Up Again And the Trade Tom Preston Is Watching.

RKT

The speaker suggests selling the 38 put as a bullish trade, given the skew of the options market pointing towards the call side, indicating perceived risk of the stock going up. The trade has a 84% probability of collecting half of its 42 cents max profit ahead of expiration, with a max risk of 12.58 if the stock goes to zero. The theta is a $1.36 per day, which is considered a good return for theta.

RKT

The speaker suggests selling the 42 put in the April expiration as a strategy for expressing a bullish or bearish stance on RKT. The theta is noted as a $1.36 per day return, which is described as a 'pretty pretty good return' for theta. This strategy is presented as a way to capitalize on theta decay, assuming the underlying asset (RKT) behaves in a manner that allows the put to expire out of the money.

Mortgage Rates and 10-Year Treasury Futures

Mortgage rates are closely tied to the 10-year Treasury future (ZN), which serves as a benchmark for mortgage rates. Lower interest rates, indicated by rising 10-year prices, benefit homeowners. However, recent conflicts have caused 10-year prices to fall, leading to higher mortgage rates, which negatively impact housing activity. The speaker notes that housing starts and interest in buying homes have shown some improvement, but the impact of higher mortgage rates on March data remains uncertain.

Why is the 10-year Treasury future used as a benchmark for mortgage rates?

The 10-year Treasury future is used as a benchmark for mortgage rates because the average maturity of mortgages is around 10 years. This means that changes in the 10-year Treasury yield directly influence mortgage rates.

TakeawayThe 10-year Treasury future is a key indicator for mortgage rates due to its correlation with the average maturity of mortgages.

What is the theta for the trade?

The theta is $1.36 per day, which is described as a 'pretty pretty good return' for theta.

TakeawayThe theta of $1.36 per day is a key factor in the trade's profitability.