Options Trading News

November 14, 2012  Wed 10:22 AM CT

A large call spread sees a potentially big move higher in the TLT Treasuries exchange-traded fund.

The iShares 20+ Year Treasury Bond Fund trades at $126.24, down 0.29 percent in late morning trading after closing at its highest in more than two months yesterday. Shares have been climbing off support of $120 in the last month, driving the correlation between the S&P 500 and the TLT to -0.97.

More than 12,000 each of the March 133 and 139 calls have traded against open interest below 500 in each strike, according to optionMONSTER's systems. The trader was buying the 133 calls with the big block of 9,000 for the ask price of $1.41, while the 139 calls were sold for the bid price of $0.51.

This call vertical spread costs the trader $0.90 to open. The sale of the higher-strike calls limits potential gains but also lowers the cost of the spread by more than 30 percent. (See our Education section)

The TLT has never seen prices above $133, so this is a bet that the fund will runs to significant new highs. That would very likely correspond to a drop in equity prices and may be a play on that possibility.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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