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Short Treasurys With TLT Options

The run in bond prices appears to be over

This article is brought to you by LearningMarkets.com.

Bond prices have run up during the past few weeks, as the euro zone troubles have driven investors to Treasurys as a safe haven. However, bonds have their own headwinds to contend with, and based on my analysis of resistance on the chart of the iShares Barclays 20+ Year Treasury Bond Fund (NYSE: TLT), I suspect their run is over. So I’m setting up a synthetic short position in TLT with support at $90 as my profit target.

I prefer to use TLT rather than a leveraged or inverted ETF, because those vehicles come with time value and compounding problems. With the trade below, I can hold the position and roll it out if I need to without incurring a lot of costs.


Buy to open (BTO) TLT Jan 97 Puts
Sell to open (STO) TLT Jan 98 Calls

Target Entry Price

I set a limit order, which was just filled as I write this, for a 5-cent credit, so there wasn’t really a “cost” to enter the position. However, I will need to post 20 times the strike price of the short call as margin, so I technically have about $2,000 invested per contract.


If TLT goes above $102, I will close the trade. Assuming that is my worst-case scenario, I have a between a 1:2 and 1:3 risk-to-reward ratio.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/11/short-treasurys-with-tlt-options/.

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