Conservative option strategies, what did you buy or sell today?

[NilesMike]

Waiting for VIX3M to exceed VIX6M, then will buy TYD

[fenders53]

VBIN,

I'm sure you understand the basics of bonds. But you asked about TLT so let's discuss it. Movement in the price of a bond is the inverse of the yield. Pretty much stock price/div yield in reverse. Back in the day when safe bonds yielded 5 or 8%. it wasn't too significant if the daily interest rate moved 0.10%. Now it does and TLT action today illustrates it well. TLT is an ETF and they hold many thousands of individual bonds of course, with news bonds replacing bonds at maturity date. (they can trade them early but not important now)

Just today the 10YR treasury rate rose .13%. That is a 9.29% increase in yield in one day. That's a big daily move. The stock market didn't like it because it's been a trend.

Yesterday a share of TLT was $140.83.

Today T rates rose .13%, and yield is now 1.63% annual. It will gradually rise to prevailing yield. TLT share price dropped $2.30 to $138.63 because they hold bonds that don't yield todays higher rate.

So if you bought yesterday and rates freeze now (which they won't) Your yield while you hold it will rise to about 1.63% shortly to match current market rate. It's an index, it may take a few days or week to match perfectly as they flip bonds. The $2.30 TLT share price drop happens to be 1.63%. That's a coincidence it matched this exactly.

Bottomline is had you bought TLT yesterday you are instantly down the entire annual interest payout in only 24 HRS. I don't like that risk/reward AT ALL when the whole world expects rates to rise for awhile. Pull up a TLT chart. Had you bought just a couple months ago you would literally be down the equivalent of 5 years of bond dividends. You know you are going to dump that for a loss to free up capital. Selling puts won't save you from a constant grind up in rates. It works in reverse as well of course. All last year I was selling TLT puts and never got exercised. I and everyone else thought rates would not go up during a pandemic with an attentive FED. We were right. It was low $160s just last fall. That's a damn big drop if you held.

On a side note TLT can be a nice hedge. Recession comes, FED drops rates and TLT share prices rises while our stocks are getting hammered. Your yield will gradually drop but you were already paid for holding at the right time while rates were higher. It won't work nearly as well down here. 5%+ bond yields was a whole different game because they could drop rates 1% a quarter if they wanted too. Doesn't work now because we will be at zero quick. Don't ask me about negative interest rates. I've never lived it and don't want to pretend to know the crazy twists that could bring.

Going long any bonds other than ultra short term is damned risky while rates are rising. I just don't want to be in the hopeless position of being down 10% with a miniscule yield. Some wealthy folk that aren't informed won't be pleased when they see their next statement if this continues. This kind of stuff makes MO and T look real good. Might as well get 7% yield if you are going to risk a 10% loss of capital anyway.

Hope this was helpful.

[fenders53]

(02-25-2021, 06:17 PM)NilesMike Wrote: Waiting for VIX3M to exceed VIX6M, then will buy TYD

Sounds interesting Mike.  Care to share a few sentences about the entry exit plan?  This is a 3X leveraged bond fund VBIN so we have to read the owners manual carefully to play.  

[vbin]

Yes, very helpful. You bring up a good point on T and MO but I already have decent positions in them.


How fed will push interest rates down, they are already 0. Did you mean negative?

[fenders53]

(02-26-2021, 12:05 AM)vbin Wrote: Yes, very helpful. You bring up a good point on T and MO but I already have decent positions in them.


How fed will push interest rates down, they are already 0. Did you mean negative?

I'm not sure they could do much other than buy or sell bonds until the stimulus plays out.  I'm not a FED expert.   Every 6 months they break out a new trick I never knew was legal.

[NilesMike]

(02-25-2021, 08:10 PM)fenders53 Wrote:

(02-25-2021, 06:17 PM)NilesMike Wrote: Waiting for VIX3M to exceed VIX6M, then will buy TYD

Sounds interesting Mike.  Care to share a few sentences about the entry exit plan?  This is a 3X leveraged bond fund VBIN so we have to read the owners manual carefully to play.  

Entry is when 3M closes > 6M (backwardation). Buy TYD at the next open.

Exit is 25% gain in TYD, might miss the max but a good trade nonetheless.

When back in contango 6M>3M buy UPRO at the next open.

(for swing trades, I like to base them on VIX term structure, long term is DGI and day trades are ES at inflection points {hi/low of prior days-significant swing points} )

[fenders53]

Mike,
Let me know when you try it and I will at least track the trade with you.

VBIN

Regarding the bonds, nothing I said was profound. Just basics you have to understand. There are other things that move bond prices and yields. Supply and demand like always. Remember in March when the market was afraid of corporate bonds from all but the highest rated companies. FED had to step in and buy "junk" bonds until stimulus was dispersed. A scared bond market makes wild moves.

There was a time when anyone near or at retirement age was advised to be 50% or more in bonds. Committing to a 2% yield and risking loss of capital makes that an iffy plan for me and many others now. You should put a few bond funds on your watch list with varying maturity and see how they move through the cycles. TLT, 20-30 longterm corporates etc. Things change and 5-10 years it might have a place in our portfolios. If you bought long bonds in 2019 you were up 20-25% on your capital in a year. When rates are more likely to fall than rise it often works out.

[NilesMike]

Some good bond ideas here.

https://martinschwoerer.medium.com/etf-i...d6d51a3e32


Time to take off the calls on T and KO today.

[fenders53]

(02-26-2021, 04:19 PM)NilesMike Wrote: Some good bond ideas here.

https://martinschwoerer.medium.com/etf-i...d6d51a3e32


Time to take off the calls on T and KO today.

This is structured almost exactly like "The 12% Solution"  A strategy/book I read a few years ago.  It uses a mix of major stock and bond ETFs.  I just checked in and I should have done it last year.risky th
I decided not to due to commissions which are non issue now. It's probably slightly less risky than what I am doing with the long equity component if what I am doing now.

[fenders53]

Not option related but when you guys have time I have a new to me strategy I am trying out and would like some feedback. I know you guys are a little more analytical on this thread so I would much appreciate your opinions. It will take you a minute but I will stick with this so you aren't wasting your time. Thanks.

http://dividendgrowthforum.com/showthread.php?tid=1958

[fenders53]

VBIN I know you roll puts sometimes. Listen to this Hail Mary. So maybe 6 weeks ago PEP hit 148 and I was pretty sure earnings wouldn't be good enough. So I sold my shares, then sold a strike 146 for some good premium. PEP steadily drops. I walk the put down every week and grab a little more premium. I get it to strike 141 in about a month. Expired today so I bought it back for $1100. Ouch I am down about $700. So I sold an at the money put in ENPH on the hard dip today for $1140. Looked real good a couple hours later when it ran and put dropped to $600. If ain't MAR 19th yet so I'll let you know. I like ENPH but damn it's volatile lately.

[vbin]

Glad it worked out for you. I got a MO call assigned today. That bring my MO position to less than I want. Will be selling puts next week for 3/19.

Watch out. It's gonna be volatile and 3/19 is TW. I think we can see a lot of selling and roll forwards.