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Most of the time, I’m in and out of trades within a week. Every now and then, though, a setup comes along that deserves a little more patience, and that’s exactly how I’m approaching the bond market right now.
I opened a put position in the iShares 20+ Year Treasury Bond ETF (TLT) when it was trading around $83.51. I bought the Aug. 21 $82 put for about $0.43. That’s more time than I usually give a trade, but for less than 50 cents, I thought the structure made sense.
Why I’m Bearish on Bonds
The thesis is straightforward: I’m bearish on Treasury bonds. Crude oil has been showing strength, the broader market has remained resilient and, historically, those conditions tend to create pressure on longer-term bonds.
Geopolitical tensions have also continued supporting energy prices, creating another headwind for Treasurys. When TLT moved into what I viewed as a sell zone, I started looking through the options chain for an inexpensive way to express that view.
I didn’t overthink it. I scanned the chain, looked at where the open interest was building and settled on the Aug. 21 $82 put.
The pricing was attractive, the liquidity was there and the trade gave me enough time to let the idea develop without worrying about every daily fluctuation.
Why the Option Is So Cheap
One of the reasons this trade stood out is because TLT doesn’t move like an individual stock. It grinds and drifts over time, which generally keeps implied volatility lower and makes longer-dated options surprisingly inexpensive.
Compare that with something like the United States Oil Fund (USO). An option just a dollar or two out of the money can cost several dollars because the market expects much larger swings. TLT is a much slower-moving product, and that works in your favor when you’re buying time.
I’m not positioning for a sudden collapse in bonds. I’m positioning for a gradual move lower, which is why I intentionally chose a later expiration instead of trying to predict the exact day the move begins.
This isn’t about perfect timing. It’s about giving the trade enough time to work while keeping the upfront cost small. For $0.43, I don’t need a dramatic move — I just need the broader trend to continue drifting in the direction I expect.
It’s a small position, a clear thesis and defined risk. That’s all I need.
Geof Smith
Geof Smith Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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Disclaimer: Since 12/05/2024, the trading approach discussed today has published 66 trade alerts. 65 of 68 have returned as winning trades, for a 95.6% win rate. The average return per trade, winners and losers combined, has been 12.84% on an average holding period of 10 days. With a $5,000 starting stake, every trade targets about $841 in returns, and every trade you see today will be based on that $5,000 starting stake unless otherwise stated.
