Add TBT Calls

Fading the TLT Rally

By Bryan Bottarelli
Wednesday, June 17, 2009 12:06 PM EDT
Wed, 17 Jun 2009 16:06:00 GMT

Dear Bottarelli Research Member,

I’d like to use the recent strength in the iShares Barclays 20+ Year Treasury Bond (TLT – NYSE) to “fade” the rally. In other words, we’re going to use this 5-day rally to short the upside move. After all, it was just yesterday that President Obama told Bloomberg that he’s now losing sleep worrying about the U.S. government’s finances. He was quoted as saying, “I am concerned about the long-term issue of our structural deficit and our long-term debt because if we don’t get a handle on that then there’s no doubt that at some point, whether it’s the Chinese, the Koreans, the Japanese – whoever else has been snatching up Treasuries – they’re going to decide that this is too much of a risk.” In short, he’s concerned that foreign buyers of U.S. debt are starting to slowly back away from the table, which does not paint a strong picture for the sustainability of the recent TLT move. As you can see from the chart below, the last five days have all resulted in strong upside movements.

TLT

At the same time, this upside move on the TLT has severely affected its ultra-short equivalent, the Ultra Short 20+ Year Treasury ProShares (TBT – NYSE). As you can see below, the TBT has fallen from $60.00 down to $53.00 over the last five trading days, which looks to be an over-reaction. Therefore, I’d like to use this opportunity to play TBT calls. Specifically, the TBT July 52 Calls (TVT GZ) look attractive anywhere under $3.00 per contract. Let’s get positioned now!

TBT

PLAY: Buy the TBT July 52 Calls (TVT GZ) at or under $3.00, good for the day. Place a protective stop limit at $1.70 and a pre-determined sniper sell at $5.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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