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Pulling it All Together: Presenting the Long/Short, Market Neutral, Event-Driven Bond Straddle (TLT,TMV)

Posted on June 30, 2020

Are bonds commodities?

Let’s ask the Captain –

Alrighty, then!

Coming at you early this week (again), because an opportunity has cropped up that we believe is timely à l’extrème.

Back in the Straddle!

With caution, we’re going to continue our adventure in the straddle pairing realm.  Until we see proof otherwise, we believe the strategy holds promise.  Still love to hear from y’all, too – comments, critiques and suggestions are all invited.

Just keep invective to a minimum.

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And the trade goes like this –

A number of ETFs trade off the ICE U.S. Treasury 20+ Year Bond Index.  Among them is the popular iShares 20+ Year Treasury Bond ETF (NYSE:TLT), the gold standard, as it were, of long bond tracking stocks.

There are also a number of leveraged funds out there, bullish and bearish, that offer up to 3x the daily move on that same index.

For today’s trade, we’re going to be employing the Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (NYSE:TMV), a stock that offers a deafening contrapuntal to TLT’s simple warble.

Have a look here –

This is four years’ worth of weekly trade data, and as you can see, it matters little in which direction the index trends, TMV will soar and dive about TLT like Vaughn Williams’ lark – heard here in glorious stereo sensurround.

And that’s precisely what provides fodder for our straddle Colossus of the week.

Keep your eyes here.

Many happy returns,

Matt McAbby.

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