[Options] Bonds Ready to Move?
I agree with JC and it feels like a good time to get long TLT here. Using options to express my bullishness, I'm going to put on a trade with defined risk that will profit from a resumption of trend to and through the high tick for $TLT in March. And I'm going to give myself some time for the move to materialize.
Here's the Play:
I'm buying a $TLT August 170/180 Bull Call Spread for approximately $2.50. This means I'll be long the 170 calls and short an equal amount of 180 calls. The debit I pay to enter this spread is the most I can lose if $TLT reverses course.
Although my risk is defined in this trade, I'll close the trade down to limit my potential loss if $TLT closes below $160. Also, I'll look to close the spread down if/when there's only $1.25 in premium left in the position. Take the loss and move on.
Assuming neither above scenarios happen, then I'll look to take profits in this trade if/when I can close it for around $6.25 -- which would represent about 50% of the maximum available profit in this spread. While the options don't expire until August, I have no intention of holding it that long if I can help it.
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