20+ TREASURY BOND: The 20+ TBond Commandments
20+ TREASURY BOND: The 20+ TBond Commandments
Following The Government Into The Downward Trend
Executive Summary
TLT ranks on top of the IV Rank and IV Percentile lists.
Selling premium at the top usually pays off.
TLT with a negative beta may serve portfolios well.
Selling slightly bearish risk-defined straddle results in a 6.20 Credit.
1. Why Do I Care Right Now?
TLT continues to rank on top of my lists on IV Rank and IV Percentile, as high as 85/100 and 95/100, respectively. Both implied volatility measures tend to revert to the mean (50/100), and selling a juicy premium at the top usually pays off.
I am not particularly enjoying playing with TLT. It is not my favorite asset. But considering the market environment and the majority of assets behaving like there was no correlation below 0.90, TLT with a neutral S&P beta and correlation may serve portfolios well over the next 20-30 days.
Also, why not go with the trend? Interest rates expectations won’t go any lower over the next month. The 75 basis-point rate hike is priced in, so let’s settle that matter with a neutral to a slightly bearish position at around 109, with break-even points at 103 and 115.
2. Useful Background Information
Time does not allow for a lengthy background information section, but I liked the Yield Curve of the iShares U.S. Treasury Bond ETFs, shown below.
The TLT, iShares 20+ Year Treasury Bond ETF, seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than 20 years. The equity beta over three years is -0.10.1
3. Trade Execution
Trade Entry - Jun 16, 2022
1) Short Call 109, Jul 29: 4.80 Credit.
2) Short Put 109, Jul 29: 2.39 Credit.
3) Long Call 120, Jul 29: 0.95 Debit.
4) Long Put 98, Jul 29: 0.62 Debit.
Total: 6.20 Credit.
4. Final Comments
Expect updates on BrainDoζers within 4-6 weeks. We use the exact heading, ending with (+/- xy%), and label the cover cartoon with a red Doζed stamp. That way, the performance will be easy to follow.
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As of Apr 30, 2022.