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Options Traders Bet Against Treasury ETF


In fixed-income ETF options trading, iShares Barclays 20+ Year Treasury Bond (TLT) put buyers appeared in size yesterday with more than 100,000 put contracts trading in the session.

Options have been very quiet in TLT, as well as in related leveraged/inverse ETF, ProShares UltraShort 20+ Year Treasury Bond (TBT) for weeks now, but it appears that bearish speculators are again resurfacing here in TLT and playing lower bond prices (and thus higher yields).

After briefly eclipsing its 50 day moving average on a recent fallback in equities, TLT fell more than 1.3% yesterday and sunk back below the $122 level. The fund has hovered in between its 200 day and 50 day moving averages for the past two months now, as there seems to be a “push and pull” effect in Treasury prices between the camp that believes we are headed for sharply lower bond prices (and thus higher yields) as well as those that believe bond prices will stabilize if not continue to climb higher over time.

One theme of consistency over the greater part of the past two years however has been the presence of bearish bond price speculators via TLT options (puts) as well as via leveraged/inverse ETFs including TBT, TMV (Direxion Daily 20+ Year
Treasury Bear 3X), and SBND (PowerShares DB 3X Short 25+ Year Treasury Bond).

Yesterday, sizable put activity occurred in TLT alongside of weakness in the underlying ETF, and it appears that once again investment managers are playing the theme of “lower bond prices accompanied by rising yields” once again.

Historically, at least in the past two year period or so, weakness in Treasury Bond prices has been short lived, and generally has resulted in the resumption of a bullish uptrend, but given that we are in the middle of October during an election year here in the U.S., it is very possible that there is a more thematic, “macro” trade materializing that will cause us to be very observant of further evidence of renewed bearish looking activity in the Treasury Bond space in weeks and months to come heading into year’s end. [Treasury ETF May Hold Clue to Next Move for Stocks]

iShares Barclays 20+ Year Treasury Bond

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Full disclosure: Tom Lydon’s clients own TLT.