TLT Momentum

Update 7/9/2015; TLT reversed sharply in pre-market trading, producing a large gap at the opening bell. It was a clear change of trend and I exited my position for a loss. (I've marked the reversal with a yellow oval.)

Click on chart to enlarge.

TLT, six days 5-minute bars

Shares declined by 1.5% over the brief period I held the position, or a -535% annual rate. The options position produced a 40.3% loss on debit, for a -14,718% annual rate.

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The iShares 20+ Year Treasury Bond exchange-traded fund (TLT) broke above its 20-day price channel on Tuesday and confirmed the bull signal the next day by continuing to trade beyond the breakout level.

[U.S. Treasury Securities in Wikipedia]

TLT

Odds

Two of TLT's three bull signals over the past year have been profitable, against one loser. The winning trades on average yielded 5.8% over 89 days. The unsuccessful trade lost 2.9% over 35 days.

Ranges

Click on chart to enlarge.

TLT at 12:05 p.m. New York time, 30 days hourly bars

Implied volatility stands at 18.0%, which is about the same as the VIX, a measure of volatility of the S&P 500 index. TLT’s volatility stands in the 68th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	123.30	126.69	120.49	N/A
Lower	116.52	113.13	114.88	N/A
Gain/loss	2.8%	5.7%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

I shall use the JUL monthly series of options, which trades for the last time nine days hence, on July 17.
Bull put spread, short the $119.50 puts and long the $118.50 puts,
sold for a credit and expiring July 18.
Probability of expiring out-of-the-money

JUL	Strike	OTM
	119.5	56.0%

The premium is $0.36, which is a bit more than a third of the width of the position’s wings.The stock at the time of purchase was priced at $120.15.

The risk/reward ratio is 1.7:1.

Decision for My Account

I've opened a position in TLT as described above.

-- Tim Bovee, Portland, Oregon, July 8, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.