--Bearish options bets build in ETFs tied to Treasurys
iShares Barclays 20+ Year Treasury Bond Fund highest in two years
hold most bullish options on record in ProShares UltraShort 20 + Year Treasury
ETF By Chris Dieterich OF DOW JONES NEWSWIRES
NEW YORK (Dow
Jones)--Bearish bets against U.S. Treasury-based ETFs are at their highest level
in two years, a sign that investors are growing cautious about the run-up in
Treasury prices and increasingly upbeat about U.S. stocks.
This flurry of
options activity in the two largest exchange-traded funds signals rising
investor confidence in U.S. equities because stocks and Treasurys tend to move
in opposite directions.
The put-call ratio for the iShares Barclays 20+ Year
Treasury Bond Fund (TLT) closed last week at 1.77, the highest in roughly two
years, according to Trade Alert. The figure reflects a greater proportion of
traders looking to profit from declines in the ETF, which rises and falls in
line with U.S. Treasury prices.
At the same time, bullish trading has surged
in a fund that acts as a supercharged foil to the TLT--the ProShares UltraShort
20 + Year Treasury ETF (TBT). This ETF is designed to inversely double the moves
in its underlying index, rising when U.S. Treasurys sink.
are holding a record number of TBT calls, with the ETF's put-call ratio ending
last week at 0.53, the lowest in a year. That means traders are holding roughly
twice the number of contracts that profit from Treasury declines.
week's call buying in the TBT, alongside the put buying in the TLT, were
indicators that investors are positioning for a weakness in Treasurys," said
Alison Edwards, derivatives market intelligence analyst at Susquehanna Financial
Positions in the options market offer a glimpse into what investors
and traders think about the future direction of Treasurys. Call options are
contracts that grant the right to buy shares for a set price by a fixed
expiration date, while put options grant the right to sell shares.
of the year, concerns over slowing global economic growth and sovereign debt
trouble on both sides of the Atlantic drove investors to the safety of U.S.
Bond prices soared, and yields plunged to historic lows. The
sharp rise in Treasury prices got a lift last month from the Federal Reserve's
plan to lengthen the maturities of its asset portfolio.
10-year yield plummeted to a record-low 1.672% on Sept. 23, but last week
climbed for four sessions to finish at 2.083%. The yield on 30-year Treasurys
finished last week at 3.019%. Bond prices move in the opposite direction as
U.S. bond markets were closed Monday in observance of the Columbus
Day holiday, but ETFs that track Treasurys were active on U.S. equities
exchanges. The TLT fell 1.2% to 116.79 in late-afternoon trade. The TBT rose
2.5% to $20.58.
The largest options positions in TLT are bets that the ETF
will peel back from last week's nearly three-year high in the next two weeks.
Traders hold more than 45,000 October $90 put contracts, and roughly 35,000
October $112 put contracts.
"You could say that people hedging TLT after a
24% run-up [in 2011]," said Henry Schwartz, president of Trade Alert, a New
York-based options data provider.
In TBT, the largest outstanding positions
are calls that grant the right to purchase the ETF for $25 by December options
expiration, more than 20% higher than the current market price.
options traffic in the TBT echoed the recent theme, as an investor adjusted a
large position to capture a rise in the ETF above $21 before October 21.
-By Chris Dieterich, Dow Jones Newswires; 212-416-2611;
(END) Dow Jones Newswires
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No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.