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Reverting Fly in TLT

Home › Forums › Income Trades › Reverting Fly in TLT

  • This topic has 3 replies, 1 voice, and was last updated 7 years, 8 months ago by Steven Place.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • October 14, 2014 at 9:09 am #2109
    Steven Place
    Keymaster

    tlt-1

    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.

    tlt

    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.

    October 15, 2014 at 1:40 pm #2112
    Steven Place
    Keymaster

    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

    October 17, 2014 at 1:44 pm #2111
    Steven Place
    Keymaster

    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.

    tlt-after

    October 20, 2014 at 1:52 pm #2110
    Steven Place
    Keymaster

    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.

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