Tuesday, October 11, 2011

Bearish options bets build in ETFs tied to Treasurys

--Bearish options bets build in ETFs tied to Treasurys
--Put-call ratio iShares Barclays 20+ Year Treasury Bond Fund highest in two years
--Traders 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.
Options traders 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.
"Last 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 Group.
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.
For much 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. Treasuruys.
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.
The benchmark 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 yields.
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.
Monday's 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; christopher.dieterich@dowjones.com 
(END) Dow Jones Newswires


 *Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

 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.


  1. eToro is the best forex trading platform for beginning and professional traders.

  2. New Diet Taps into Pioneering Concept to Help Dieters Lose 12-23 Pounds within Just 21 Days!