Monday, June 28, 2010

New Position: TLT

I bought the August 100/101 call spread for .395. This is in contrast to my July 101/102 short call spread. I am currently looking to walk that call spread out for a few pennies, or even close it out entirely for a small loss as I'm more bearish now than when I put that trade on. My general feeling is that as earnings roll in starting in July, that no matter what actual earnings are, the guidance will not be what current projections are and thus earnings need to be restated for equities going forward. I think bond yields will continue to go lower until we get reconfirmation that GDP growth actually exists. It's also possible that the correction in equities and run in bonds has already properly discounted this scenario. So, in case I'm wrong, I also sold August 93 puts for .45. So this is a small net credit trade that carries risk below 93. For this to occur earnings and guidance would have to be great in order to get stocks to rally and bonds to sell off. I just don't see this so I put my money where my mouth is. I'll have to manage my risk to the downside should this start to occur because I would not be interested in taking possession  of this instrument.

Here is the combined diagram with call spread and short puts. I've also included the IV screen shot. TLT actually sees an increase in IV as the underlying price increases, this is similar to how gold IV reacts for the obvious reasons. This is another reason why I wanted to own the call spread rather than be short it. You can match up the dates on the chart for spikes in TLT and the spikes in IV.


  1. I agree. I still like short bonds as an idea, but not in this environment. But I think their will come a point that will make this trade interesting again. I am pretty sure that I will get stopped out of my short position in TLT today as my stop was a break above $100. I only sold two call spreads so the risk/loss is going to be minimal. It was just a feeler position and the rest of my portfolio is set up in a way to profit nicely for the short side of the overall market and a few individual names.

  2. By the way, I really like how you structured this trade. And your posts have come a long way, keep up the work, they are interesting to read.