Futures Now: Blog

How Pros Plan to Profit From the ‘Fiscal Cliff’


Policymakers have just weeks to avert the "fiscal cliff" — a series of measures that, if unchanged will result in tax increases and spending cuts on Jan. 1, and professional traders can't agree on whether Washington will reach a compromise in time.

From the floor of the New York Mercantile Exchange, trader Anthony Grisanti said Tuesday he's optimistic lawmakers will meet the deadline to solve the nation's fiscal woes.

(Read More: What Is the Fiscal Cliff?)

"Call me naïve, but I do think a deal gets done," said Grisanti, founder and president of GRZ Energy. "I'm putting my faith in these representatives that they will get a deal done by the end of the year."

(Related: 'Little Progress' in 'Fiscal Cliff' Talks: Harry Reid.)

In turn, Grisanti said he's getting short bonds and selling 10-year Treasury bonds in particular. He sold the 10-year bond at $133.20 with a stop at $134 and a price target at $132.20. If there is a deal, though, he will adjust his target because he thinks T-bonds have more room to the downside.

Best Fiscal Cliff Play? Sell Bonds

Trader Rich Ilczyszyn, on the other hand, is not holding his breath for a "fiscal cliff" deal.

"I have zero faith in the politicians," said Ilczyszyn, founder and chief market strategist at iiTrader. "They may get some kind of deal, but I still think you have record amounts of cash sitting on the sidelines until after the first of the year."

(See: 5 Reasons America Won't Fall Off 'Fiscal Cliff.')

Ilczyszyn thinks it's just "too early to tell" whether Washington will come together to avoid the "fiscal cliff." It's apparent, however, that a lot of money is "sitting on the sidelines," as investors are uneasy about the deadline. He doesn't think people will come back into the market until after the first of the year. So, he will likely start shorting the market on Jan. 1.

If the U.S. goes off the "cliff," however, Grisanti said he will stop out immediately of his trade. Without a deal, he suspects the 10-year could fall to the $120 level.

Ilczyszyn shared his concern.

"This is uncharted territory. You have to look at it like, this has never happened, and the ripple effect, not just here in the States, but it will go all around world," Ilczyszyn said. "So I think then, it's a flight into safety and I think it will be the dollar and the Treasurys that get the biggest pop."

Read on for 10 Things You Need to Know to Trade Futures

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