The risk-off story that has decimated T-Bonds seems unpersuasive in this very troubled world. Bond prices have plunged simply because stocks have risen, goosed repeatedly by Trump tweets hinting that trade talks with China will settle amicably. Even if a face-saving deal is reached — and that is probably the best we can hope for — it is unlikely to revive global trade to the extent that has been discounted by the markets. Their aberrant behavior implies there may be an opportunity to profit when risk-off craziness subsides and the trends reverse. Specifically, we’ll look to buy call options in this ETF, which tracks the long bond, as it bottoms. The chart shows why this may have occurred on Friday. My hunch is that TLT has further to fall, but let’s get our feet wet anyway, bidding 0.48 for four October 18 142 calls, day order. This is a cautious bid designed to take advantage of opening-hour shenanigans, so don’t pay up. If the algos trade close to our bid without filling it, we can adjust on-the-fly. ______ UPDATE Sep 17, 6:06 p.m.) With TLT on the rise the calls have traded no lower than 0.85. Cancel the bid for now — we’ll try again later if weakness returns. _______ UPDATE (Sep 24, 10:05 p.m.): So much for weakness returning! Use the 145.74 midpoint resistance shown in this chart as a minimum upside target for now. _______ UPDATE (Sep 25, 9:36): Let’s use this weakness to stake out a small position. For now, bid 0.18 for eight 25th Oct 150 calls, good through Friday. If the order fills and TLT rallies, we’ll look to turn it into a calendar spread by shorting 150s with closer expiration date. The 150 strike coincides with p2= 150.33 of a big bullish pattern begun from 130.51 on 7/25 that projects to 154.93. _______ UPDATE (Oct 1, 12:45 a.m.): Cancel the trade, since TLT is being uncooperative. We’ll continue to look for a few consecutive days of weakness before we jump on it.
TLT – Lehman Bond ETF (Last:143.06)
