(Bloomberg) -- A “quiet bull structure” on Treasury options that was recommended Wednesday by the strategy team at Citigroup Inc. is a big win so far for anyone who took the bet. 

The position, which involved buying and selling a mixture of so-called Treasury 10-year weekly options, was designed to profit from any near-term gains in US government bonds after recent losses. That’s just what happened Thursday as Treasuries advanced, helped by a combination of short-covering, month-end buying and economic data on inflation, jobs and manufacturing. 

Citi Recommends Options Position to Hedge Month-End Rates Rally

The cheap options play was recommended when the price of the structure would cost just one tick, or $15.625, the minimum price of an options contract. Screen pricing of the options in early afternoon New York time on Thursday showed the position had since propelled to a peak of roughly 20 ticks as the bond market rallied. That equated to a 20-to-1 payout and profit of roughly $625,000 on the recommended 2,000 option-size wager. 


A rates selloff “seems to be running out of steam,” strategist Jabaz Mathai said in a Wednesday note, adding that upward moves were likely as traders unwound bearish positions. Meanwhile, anticipation of the monthly rebalancing of bond indexes also appeared to add support to the market this week. “Into month-end tomorrow, there is also the possibility that there could be some re-allocation from equities into bonds,” he added. 

Bond Market Rallies as Inflation Gauge Supports Rate-Cut Outlook

The now in-the-money position expires Friday, and the value could change by then — but anyone who put on the trade and covered it by Thursday afternoon is sitting pretty.

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