Bonds, T-Bonds — Shaken, Not Stirred

bond

by Steven Sarnoff

No, not that Bond.  I’m talking US Treasury bonds! In today’s session staid T-bonds sold off a little over 1%, as investors fret over future central bank monetary largesse.  Interest rates move inverse to bond prices, so falling bond prices mean higher yields.

Our Options Hotline subscribers were positioned beautifully for this scenario and saw their money multiply in just over two weeks!

Superleverage Power On Display

On August 25th I posted to our facebook page,”Pressure has been building in Treasury bonds for the last month. Now we are approaching the time for a turn. Those bond bulls who believe rates will stay down may find the market has other ideas.

In my August 28th commentary I told subscribers, “Differing opinions make markets and Friday’s wide-swinging response to Fed Chair Yellen’s typically ambiguous remarks in Jackson Hole tell me quiet markets are soon to hear some noise.  Longtime subscribers know we’ve done well with recommendations on moves in both directions in Treasury bonds and have been on watch since covering our last call for rising bonds (falling rates). Will we see a bond blowoff or breakdown? Market price movement is providing a strong clue. As volatility returns, we could even see stocks and bonds both move lower.

In that bulletin, I recommended that my readers buy the TBT October $32 call for $1.00 or less.

TBT is a leveraged ETF that seeks to return two times the inverse (-2x) of the daily return of an index of longer-term (20+ years) US Treasury bonds.  Simply, on a given day, a down move in T-bonds (rise in yield) would see double the percentage move to the upside in TBT shares.  A rise in bond prices (fall in yield) would also double the drop in TBT.

Here is an excerpt from the 08-28-16 Options Hotline:

“As you can see on my daily candlestick chart below, TBT has consolidated sideways since July. That struggle between buyers and sellers is now reaching a decisive point. Friday’s positive red candle line is an early indicator that TBT is set to break up (bond prices down), along with longer-term interest rates. I am looking for a move back up to the mid-$30s over the weeks ahead.

Support is at: $29.50-$31.15. Overhead resistance is at $32-$33 and $35-$37. You may use $29 as a stop-loss level.

Traders may target a move toward $35.

If TBT rises to $35, each $32-strike call will have $3.00 of intrinsic value. If my expectations go awry and TBT is at or below $32 on the third Friday in October, your option will expire worthless. That is your risk.”

tbt082616

 

The recommended option was triggered on August 29th at $.98 (since each option controls 100 shares, the option price was $98, not including transaction cost) with TBT shares at $30.98.

Now, the updated daily candlestick chart for TBT:

tbt091316

You can see the breakout move by TBT over the last five trading sessions.

The TBT October $32 call, triggered 08-29-16 at $98, traded 09-13-16 at $215, +119% in just over two weeks, on an 8% move in the underlying shares, with an always known and strictly limited risk!

This one joins the ranks as our 8th officially triggered multiplier this year and the 220th in my 204 months as Options Hotline editor.

That is the Superleverage power of my method on display.  I can’t guarantee that all my recommendations will become multipliers, but I do promise to continue to do my best each week to find options winners for my great subscribers.

If this is the type of options action you are looking for, click here to subscribe.

Feel free to contact me with any questions.  I always enjoy hearing from you, even when you tell me my picks are crazy!

Best regards,

Steve

 

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