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Play of the Day: Treasury yields likely to rise regardless of debt deal

|Includes: ProShares UltraShort 20+ Year Treasury ETF (TBT)

Guest Analyst: Stutland Volatility Group (July 7, 2011, 1:24pm CDT)

Symbol Analyst Target Price Target Date
TBT $49.00 Dec. 15, 2011

ProShares UltraShort 20+ Year Treasury (ticker: TBT) is an exchange-traded fund that seeks investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital US Treasury 20+ Year Treasury Bond Index.

As we all well know, the US has an account deficit and budget gap problem. The only way that problem can be solved in the long run is to raise taxes or cut spending. In the short term, the US will continue to print money and sell treasuries to finance its debt.

Whether a deal on the debt limit is turned down or goes through, in the long term, treasuries will go lower. The 52-week low for the TBT is 29.75. The 52-week high is 41.54. With China raising rates again, we can't see rates staying here or moving lower.

We believe that for the rest of the year that TBT will not test the 39 dollar range and could move as high as 49 by the end of the year.

The biggest bond manager in the world, Bill Gross of Pimco, believes that treasury yields are low and will have to move up. If Bill Gross says bonds are going lower and rates are going higher, that is good enough for us.

Play of the Day

Based on ProShares UltraShort 20+ Year Treasury's (ticker: TBT) current market price of $34.38 and using a target price of $49.00, a target date of December 15, 2011 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Dec Strangle +327% 41%
Buy Dec Straddle +162% 52%
Sell Jan Put Spread +120% 51%
Buy ETF +43% 58%

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