Reverting Fly in TLT

[Steven Place]

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.

[Steven Place]

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.

[Steven Place]

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.

[Steven Place]

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.

[Author]

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