TLT: The iShares Barclays 20+ Yr Treas.Bond (ETF) Is Beckoning to Buyers

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Profit taking has finally struck in risk-off assets from bonds to gold. The iShares Barclays 20+ Yr Treas.Bond (ETF) (TLT) has dropped almost 4% from its highs and is still falling.

But c’mon. Bond watchers simply can’t be surprised. The ascension in TLT had become veritably parabolic. Such rocketship rises never last.

Never.

The inevitable comeuppance has arrived for fearful investors fleeing into TLT at its lofty levels. To those who waited for the bond ETF to descend to more sane levels, the market gods commend you. You’re about to be rewarded for your prudence. A low-risk entry is materializing as we speak.

To the charts.

TLT

Source: OptionsAnalytix

Like gold, bonds kicked off 2016 with a bang. Spurred by a swift plunge in stocks and all things risk related, TLT has been welcoming scared money for weeks now. At its peak last week, the bond ETF was up 11% year-to-date.

Not bad for six weeks of work.

The rapid rise was sufficient to turn all major moving averages higher. Though a bout of profit taking has taken TLT down hard the past few days, its trend is now decisively higher, making its pullbacks potential buying opportunities.

If you think the bear market in stock land rolls on, the current TLT drop should be piquing your interest. Additional swoons from stocks in the weeks ahead should keep demand for bonds elevated.

The TLT iShares 20+ Yr Treas.Bond (ETF) Trade

Here’s an interesting trade to consider. Buy the April $130/$135 call spread for $1.65. The max loss is limited to the initial $1.65 debit and will be incurred if TLT sits below $130 at expiration. The max gain is limited to the distance between strikes minus the net debit, or $3.35, and will be captured if TLT sits above $135 at expiration.

The bull call spread is well-positioned to thrive if we get another type of upshot in bonds over the next two months. All we’d probably need to spur such a move is another sharp selloff in stocks, which is certainly not out of the question given the precarious posture of equities these days.

In timing your entry, I suggest waiting for signs that the retracement in TLT has played itself out and a new advance is upon us. Rather than holding the spread until April expiration, consider exiting if the bond ETF touches $135 at any point during the trade.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/02/tlt-bond-etf-beckoning-to-buyers/.

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