Update: TLT – Bonds Shaken, Not Yet Stirred

by Dan November 18, 2019 3:35 pm • Trade Updates

On Friday, November 8th I detailed a bullish strategy in the TLT, the iShares 20-year U.S. Treasury Bond ETF when it was trading $135 as I felt that some of the factors that were driving up Treasury Yields from their recent August lows might soon abate. First, from a technical standpoint, it appears that the TLT might have good support at the breakout level from August. And second, while not the 20-year, the 10-Year U.S. Treasury Yield found healthy resistance last week just below the psychologically important 2% level.

Here was the trade idea from Nov 8th:

-Buy to open 1 March 135 call for $4

-Sell to open 1 March 150 call at 50 cents

Break-even on March expiration:

Profits of up to 11.50 between 138.50 and 150 with max gain of 11.50 at 150 or higher

Loses of up to 3.50 between 135 and 138.50 with max loss of 3.50 at 135 or lower.

Rationale: again given the current price action in U.S. Treasury Yields and some of the current macro “news” flow, this is clearly a contrarian view, but this trade risks ~2.5% of the ETF price with a break-even up ~2.5% and offers a max potential payout of 8.5% if the TLT us up 11% in a little more than four months.

I detailed the idea on Options Action on CNBC that afternoon:


On this past Friday’s show, a week after first presenting the idea with the TLT up $3 or about 2% in a week I offered this update:

My take-away is pretty simple, hang tight, I deliberately chose March expiration because this view is likely to take some time, and yields might go a bit higher before they fo lower.