Hey There fellow Income Hunters,
Well, after yesterday’s discussion on the Fed and the Bond market I came today ready to execute one of my favorite bond strategies…
I’ll take you through the process because it will help you see how you can get an advantage by leaning on the Fed and Bond supply.
Post Fed meeting I thought TLT would struggle because the Fed made no mention of buying longer dated bonds plus their aim was getting inflation above 2%, which is bearish for bonds.
My third reason for selling TLT was a Treasury announcement to issue 20yr Treasury Bonds on Monday. This is the official announcement:
We will be seeing plenty of these in the new year and I planned on buying a short-term TLT put spread on any rally today to set up for this auction. I got a nice break when TLT opened higher.
So, I pulled the trigger in the first hour and this is what followed:
So, I purchased a 12/31 expiry 157.5 – 156.5 put spread for .35. I was very happy with an almost 3-1 reward to risk ratio.
However, I may regret not taking my reward.
My point is, in this market environment when you have good money in a short-term trade heading into quadruple witching Friday… you Take it and move on to the next one.
See, I believe the rules of trading are changing…
The 60/40 portfolio allocation is broken because the Fed is purposely price fixing bonds by buying them at rates below inflation. This creates a negative “real return” scenario and lessens the role of bonds as a safe haven asset…. Bonds are becoming riskier than stocks in some regard and this is really important to understand.
So, with volatility expected to remain high, trading option strategies and hunting for good reward to risk ratios across asset classes becomes a much better investment strategy. Especially in a period when volatility is above the historical norm.
Power Income the “new style” of trading is about greater rewards, lower risk, a systematic approach and enjoying every minute. In other words making more money while having more time to enjoy life…
As we head into the end of year when volatility is seasonally elevated and market volume is thin… Prepare a solid game plan, jump on fast income trades and capture super-sized gains.
Then you have extra money to buy yourself GI Joe with the Kung Fu Grip for Christmas!
Live&Trade w/Passion my Friends,
- DISCLAIMER: FOR EDUCATIONAL AND INFORMATION PURPOSES ONLY; NOT INVESTMENT ADVICE. The materials presented from Option Pit LLC are for your informational and educational purposes only. Neither Option Pit LLC nor its employees nor its affiliates offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational and educational purposes intended is at the user’s own risk.
- Option Pit LLC is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented materials. Option Pit LLC IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER. Specific trading ideas or strategies discussed in the presentations or materials are entirely illustrative and do not constitute a solicitation of a transaction (or transactions) or a recommendation to execute a particular transaction or implement a particular trading strategy.
- To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Use caution when entering any option transaction and it is recommended you consult with your financial advisor for investment, legal or tax advice relating to options transactions.