[ConservativeOptionStrategies] Re: TLT COVERED CALLS

 

jack the relationship between bonds and interest rates are pretty simple......for every percent increase in interest rates the bond will fall approximately the percent of the duration of the bonds.....for example if you have a bond with average duration of 3 years it will fall 3% for a 1% increase in interest,,,,for a 20 year average bond fund it will drop 20% for a 1 % increase.......drjoe

--- In ConservativeOptionStrategies@yahoogroups.com, Jack Wigandt <nhhobbyfarmer@...> wrote:
>
> OptionsMike,
> Have you considered the use of TBT. This is an inverse and leveraged (2X) ETF. Several times I almost pulled the trigger when TLT was at swing highs and then became occupied with other matters. I have maintained a continuous monthly position in TLT and I to have concern of interest rate increase. We should expect a dividend increase but will that be enough to off-set TLTs price decline? This month I did place a trade in TBT, so far, glad I did. No dividend on this one but it is good to have defense against interest rate increase and price decline on TLT. We wrote calls one strike OTM when the trade was placed.
>
> For anyone considering a TLT trade I placed a call to I-shares and asked for a "rule of thumb" guide as to the effect of interest rate increase on TLT. The representative we spoke with said they do have a formula but to keep it simple you may plan on a move of up to 5% in TLT for each quarter point move in interest rates. Now, I do wonder how much of that will be factored in in advance of a change in the rate?
>
> Regards and good trading.
> Jack W
>
>
>
>
>
> ________________________________
> From: optionsmike <michael@...>
> To: ConservativeOptionStrategies@yahoogroups.com
> Sent: Thu, March 25, 2010 8:35:41 PM
> Subject: [ConservativeOptionStrategies] Re: TLT COVERED CALLS
>
>
> Dr.Joe,
> I like the concept here. I've thought about it as well. My fear has always been that in a rising interest rate environment you could be burned. I believe with rates as low as they are now, we inevitably will be having rising interest rates. Maybe not next month, but sometime. So, would you collar the TLT cc with a put? Or what else might you do to protect capital in a rising-rate environment?
>
> OptionsMike
> www.safe-options- trading-income. com
>

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