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November 9, 2012  Fri 10:06 AM CT

TLT: SEE CHART GET CHAIN FIND STRATEGIES
The TLT Treasury exchange-traded fund has been climbing with this week's equity selloff, and one option trader sees more gains ahead.

The iShares 20+ Year Treasury Bond Fund is down fractionally today, trading at $125.60. It has been on the rise for the last few weeks from support at $120 and yesterday blasted higher to its best close in more than two months. The recent action has driven the short-term correlation between the S&P 500 and the TLT back up near -0.9.

optionMONSTER's systems show that a trader bought 5,000 December 130 calls for the ask price of $0.82 against open interest of just over 5,000 contracts. At the same time, he or she sold 10,000 December 135 calls for $0.25 at volume that was more than 5 times the previous open interest, indicating that this is a new position.

It is possible that the December 130 calls were bought to close a trade, but that looks highly unlikely. So this appears to be a new ratio spread opened for $0.32, which is the amount at risk if the TLT remains below $130. The maximum profit of this call vertical would come if the fund rises to $135, a bit above the all-time high from July, when it traded above $132. (See our Education section)
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