TLT got pasted yesterday, recording a loss far in excess of what I had expected. We bought four Mar 13 133 calls on the way down nonetheless — a ‘starter position’ to get our feet wet. (Note: The cost of the calls, and any loss thereof, are cushioned by a $1230 profit subscribres booked on a put position acquired pennies from the 138.50 top on January 30.) The worst fill reported by a subscriber was 0.60, so I’ll use that price for a tracking position. Although I almost never average down, I’ll recommending adding four contracts to the position if TLT falls to the 124.50 target shown.
At this point, the correction is more severe than the one that followed the October 15 spike in T-Bond prices, when Japan announced something like QE9. One explanation is that the institutional money has shifted toward risk, causing stocks and ‘junk’ to rise and T-bonds to fall. It’s tempting to think that only someone who worships at the feet of the Village Idiot would develop an appetite for risk at this juncture in history. A still-strengthening dollar has finally begun to take its toll on the profits of some of America’s biggest multinationals, including banks, America’s standing in the geopolitical world is at an all-time low, and Europe is hopelessly mired in recession and political/economic turmoil.
Under the circumstances, the stock market’s rise could be attributed, not to any great optimism on the part of money managers, but to the fact that they’re all committed to traveling with the herd until the trumpets sound from on high. _______ UPDATE (9:03 p.m. EST): Yesterday’s rally got cut in half by a nasty selloff in the final hour, but it’s too early to tell whether this will prove to be just a swoon. Maintain positions as suggested above. _______ UPDATE (February 19, 3:19 p.m. EST): I don’t like the way the stock is acting — it could fall to 124.51 — so I’ll recommend exiting the calls by day’s end. They are currently 0.43 bid. You can stick with the position if you made money on the puts I’d advised buying three weeks ago within pennies of what turned out to be an important top at 138: otherwise we’ll plan on re-establishing a bullish position at better prices.