Selling a put ratio in TLT in July. The trade is not very aggressive and sits way outside price with downside protection of a breakeven of 111.75. With 65 D.T.E. (days to expiration) there is still some considerable chance we can be way below this level with the Fed selling bonds and I am good with getting long at those prices. I will most likely take profit on the put vertical and roll the remaining (cash secured) short put out in time for a credit. I think if I were more bearish or more uncertain, I would look to increase the distance between the strikes for less of a credit on the trade (most likely for 0) Either way, if bonds rally I lose nothing.
Comment:
So I closed my position in ITB and replicated it in TLT. I still have the above position open. I opened a September 120/117 put debit spread for 1.11 and 98 D.T.E. with an extra rate hike possibly in 2018 I don't see how bonds can stay up here.....I have heard others say that this was a relief rally that bonds were sold too heavily into the Fed meeting, regardless of the reason I am making a more directional trade and will look to close at 50% unless it brings in 25% rather quickly (first week). I have less experience trading home builders and may be some event I am unaware of so that is really why I am switching over. I need bonds down, but not too far down.
Trade closed manually:
Closed this trade today for a small profit/scratch as bonds ran the opposite way and now not even back to where they started (117) seem to rally WITH the market. Not frustrated but with the put ratio expired and a little experience in trading bonds I will look for another entry with a better risk/reward. Time was turning against me and this needed to be closed.
Trade active:
I still believe that the Feds hike (93% chance as of today) in September and the final roll off of bond purchases will drive yields up and bonds down. The implied volatility is only 2.9 and the prices are up some today so my choices are somewhat limited. If I sold a call credit spread it would have to be right at the money to collect the minimum 1/3 the width of the spread, which is just too directional and the risk reward is not very advantageous. Instead I opted for a 120/115 put debit spread all the way in December for 1.85 debit with a possible profit of 3.15 The probabilities are lower and selling puts or put ratios is better but not when price is rallying. Ideally I would like to close this by the end of September and I am willing to lower my profit target to 25% any time I have to pay for a trade and time (theta) is working against me.