Forward Options In TLT

Bill Maurer profile picture
Bill Maurer

What is the Federal Reserve going to do? Are they going to buy longer dated Treasuries and sell shorter dates ones? This is appearing more and more likely, and we should see in the next couple of months how this all plays out. The iShares Barclays 20+ Year Treasury Bond ETF, the NASDAQ:TLT, is a good way to get into those longer dated treasuries, especially if you believe that 30-year rates are going down.

You might think that with all this speculation about Fed buying, people would be buying calls left and right. With the stock at $112.40, I took at the $112 strike to see what the options look like. For the October strike, the calls and puts are trading at about the same price. However, as you go further out, the puts are more expensive than the same strike calls. For instance, the November expiration puts will cost you $4.70 now, but the calls are only fetching $4.35, and that's even with the stock 40 cents above the strike. If you go out to March of 2011, the calls cost $6.45 and the puts cost $7.85.

This all could be due to volatility, or maybe not. I'm looking for a reason why the puts seem to be a bit more expensive than their call counterparts. Maybe the Fed will only buy 10-year Treasuries and not buy the 30s. Seems to me that people think there is a better chance of 30-year yields rising over the next 6 months than falling.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

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