Stars are aligning for Treasury yields to fall. This options trade hedges risk and makes money if rates dip
Jeff Kilburg breaks down this trade on the TLT ETF.
TL;DR
- The author anticipates U.S. Treasury yields will move lower, specifically the 10-year note falling back under 4%.
- An imminent Federal Reserve chair appointment is expected, with predictions leaning towards Kevin Warsh or Kevin Hassett.
- The new Fed chair is expected to align with the Trump administration's goal of lower interest rates.
- Treasury Secretary Scott Bessent has overseen the vetting process for the new Fed chair, aiming for changes that could lower interest rates.
- President Trump has directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds to reduce mortgage rates.
- A specific options trade on the iShares 20+ Year Treasury Bond ETF (TLT) is described: selling an $86 put and buying an $88 call for a net cost of $0.30.
- The trade positions the investor to potentially own TLT at $86 if the put is exercised, with unlimited upside if TLT goes above $88.