According to Bloomberg data, yields on 30 year US Treasury bonds have risen 45 basis points over the past month -- versus 48 basis points over the past year. Yields have risen (and bond prices have dropped) recently amid fears that the Federal Reserve may start tapering off its bond purchases. For investors in the iShares Barclays 20+ Year Treasury Bond EFT (NYSEARCA:TLT) who would like to add some downside protection, below are the optimal puts*, as of yesterday's close, to hedge 1000 shares of TLT against a greater-than-15% drop between now and December 20th.
As you can see at the bottom of the screen capture above, the cost of this protection, as a percentage of position value, was 0.91%**.
Possibly More Protection Than Promised
*Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor uses an algorithm developed by a finance PhD. to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones. The screen captures above are from the Portfolio Armor iOS app.
**Note that, to be conservative, Portfolio Armor calculates hedging cost based on the ask price of the optimal puts. In practice, an investor can often purchase puts for a lower price, i.e., some price between the bid and ask.