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Home › Forums › Income Trades › Reverting Fly in TLT
A few reasons for this trade:
1. TLT has rallied 6.5% in a month. That’s statistically stretched.
2. Into this rally implied volatility has continued to rise up to 15%. That may not seem like a lot but that’s the highest it’s been in a long time.
3. The “OMG RATES ARE SO LOW” stories are starting to come out.
So the trade I like here is a december put butterfly with intent to add:
Buy to open Dec 113/118/123 put butterfly for 1.40.
If TLT gets above 123 and 125 I will add more to the trade.
Keep in mind– this trade should be super boring so don’t expect it to make massive returns overnight. It will take a month for profits to get realized, unless vol really comes out.
Profit target is 20% of risk.
That was a nasty gap up as there was basically a reverse flash crash as those betting on higher rates finally capitulated.
As we’ve hit our first adjustment target, let’s add to the trade.
This is a cool way of adding — it’s another butterfly but basically what we are doing is turning the butterfly into a condor.
Buy to open TLT Dec 118/123/128 put butterfly for .90 or lower.
So you started with a Dec 113/118/123 butterfly and now you have a 113/118 123/128 condor.
A move back above today’s highs gets me to adjust again.
TLT pulled back and vol dropped hard.
The trade is sitting at 17.6% return on risk after a 3 day hold, so you’ve gotta take profits here.
BUY TO CLOSE 118/113 put spread @ 1.15
SELL TO CLOSE 123/128 put spread @ 3.85
If you don’t get filled today it’s not a huge deal but would be nice to bail on this headed into the weekend
Look to reenter the trade if we see parabolic movement again.
Welp. This is one time where I’m glad I didn’t get filled.
Going to work in an order here:
Buy to close TLT Dec 118/113 put spread for 1.00
Sell to close TLT 128/123 put spread for 4.15
Trade is now sitting at 37% return on risk, this turned out to be a much bigger winner than I’d expected.