Everyone is talking about bonds, what does this mean. Do bonds conintue higher? I continually think back the the presentation that Tom Sosnoff gave in June about contrarian thinking. As you all know I tried the short bond trade back in June but I decided that this trade was early. Since then the TLT which is an ETF that tracks 20 year treasury bonds as rallyed quiet a bit. Today it hit a high of 106.61.
Although I think the bigger money is going to be made on the short side of this trade, I do realize that this trade long has momentum behind it. But anyways I decided to go back and find the original post that I did on this idea back in June --> Prior TLT Post
In the prior post I put a chart together showing the historical for the 20 year rate over the last few years. At its low in 2008 the 20 year rate hit 2.86% today it closed at 3.66%. If you go to the Prior post and scroll down to the comment section you will notice that when I first posted this analysis the 20 year had a 4.05% rate and the ETF was trading somewhere around $97.50. In my analysis I looked at the average move in the move in the etf as a multiple of the move in the rate in absolute terms. What I found was that on average the etf moves 13 times that of the interest rate. On one of my comments on the original post I noted that based on this finding if we were to test the low rates reached in 2008 that this would put the value of the TLT at around $120. Based on the fact that we have about 80 basis points to go, using the same methodology that leaves us with a target to the upside of around 117.25 assuming we see 2.86% again.
A few posts ago I wanted to sell the 100/98 put spreads, essentially getting long but unfortetly this trade slipped through my fingers when TLT had a pretty monstoris move followed by yet another monsterous move. The closer we get to 117 the more I favor the opposite or contrarian play. I think the old saying is "the bigger they are the harder they fall", this trade seems to be getting a bit crowded and parabolic but I still don't think it is ready yet. I am going to be watching this one closely. Only I will probably favor options on the TBT as it is a double inverse of TLT.
Not sure when I will execute and how I will make the trade, but I am interested more and more each day this trades up. I don't think it stops going up until after September expiration as I think a fall in equities in the short term can give just enough juice to the upside.
I will be hawking this one!
I am itching to make this play, but I am going to be patient.
ReplyDeleteThis thing is getting interesting as it approaches my upside target. This morning it traded as high as 109.34.
ReplyDeleteI am still sitting on my hands, because I know I am early and everyday TLT reminds me that I am early.
This thing is crazy right now. Every day I feel like I missed the boat so feels silly to get long now, but every day that would have worked. It was confusing for a few weeks there that this thing and bonds in general were on a tear but equities were staying flat. I was expecting this move in TLT a few weeks ago.
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