TLT Options Traders Show Extreme Preference for Calls

Bond prices have struggled in the wake of the U.S. presidential election

Feb 17, 2017 at 2:26 PM
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Options traders at the major exchanges have bought to open calls over puts at a faster-than-usual clip in recent weeks on the iShares 20+ Year Treasury Bond ETF (TLT), an exchange-traded fund (ETF) that duplicates the price action in U.S. Treasury bonds with a maturity of at least 20 years. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 92,309 calls have been bought to open on TLT shares, compared to 48,559 puts. What's more, the resultant 10-day call/put volume ratio of 1.90 ranks just 1 percentage point from a 52-week peak.

In fact, total call open interest on TLT is docked at an annual high, with 1.03 million contracts outstanding. As a point of comparison, there are roughly 706,000 open TLT puts -- in the middling 44th percentile of its annual range. This call-heavy bias is seen among options expiring in three months or less, too, per the ETFs Schaeffer's put/call open interest ratio (SOIR) of 0.70, which is ranked lower than 93% of all comparable readings taken in the past year. Simply stated, short-term traders have rarely been as call-skewed as they are now.

Drilling down, the majority of this near-term open interest is focused on out-of-the-money (OOTM) February strikes. Front-month calls -- which expire at tonight's close -- make up five of TLT's top open interest positions. Namely, the OOTM 122, 123, 126, 127, and 130 strikes, where a collective 274,169 contracts reside, or roughly 16% of TLT's total open interest. Looking ahead to the standard March series, TLT's 115-strike put and 125-strike call hold the top open interest positions, with 45,490 and 39,302 contracts respectively outstanding.

Today, it's TLT's weekly 3/3 series that's in focus. According to Trade-Alert, it looks as if one speculator initiated a bullish short-term trade by buying to open a 6,800-contract block of weekly 3/3 121-strike calls for $0.81 apiece, while simultaneously selling to open a symmetrical block of weekly 3/3 119.50-strike puts for $0.78 each. If this is the case, the trader will profit on a move north of $121.03 (call strike plus $0.03 premium paid). Losses, meanwhile, are limited to the net debit, as long as the sold put strike remains OOTM.

On the charts, bonds sold off sharply in the wake of President Donald Trump's unexpected election win last November. While TLT found a floor near $116.80 in mid-December, it's recent rebound was quickly contained near $122 -- home to a 38.2% Fibonacci retracement of its November-to-December slide. At last check, shares of the iShares 20+ Year Treasury Bond ETF (TLT) were up 0.6% to trade at $120.38, to hold just above their year-to-date breakeven level of $119.13. Meanwhile, it's interesting to note that the optimism toward bonds seems relegated to the options pits. In fact, large speculators on U.S. bonds have fallen to their lowest point since March 2012, according to the latest Commitments of Traders (CoT) data.

TLT daily since us presidential election

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