Is TLT About to Bottom?
For 11 of the last 17 weeks, $TLT, the iShares 20+yr treasury bond ETF has sold off and closed bearish. It lost ~16%, dropping from 101.59 to a price (as of this writing) around 85.65. It’s all time low is 80.59 and its 16 year low is 82.50 (Oct 23’). Bond yields have been climbing as of late with the 10yr hitting 4.71%. But the question I’m asking myself is if TLT is about to find a bottom?
Let’s analyze this potential trade setup using our PFP system.
Options Positioning in $TLT
Looking at the options positioning in $TLT, we have the TCS (top call strike) at $90, the TGS (top gamma strike) at $85, and the TPS (top put strike) also at $85. This means we have a combo strike at $85, and when I look at the bearish/put gamma below $85, it drops off massively, suggesting that a plunge lower without adding new open interest might make $TLT oversold.
Thus from a positioning standpoint, there is the architecture for price to be bottoming.
Price Action in $TLT
Looking at the 5min chart below over the last 6 sessions, we can see an overall downtrend with a PBO setup on Jan 6th, followed by an ICI structure on the 7th only to start what may be a FB (false break) forming just above the $85 handle.
While we don’t have all the elements for a false break in place, the elements of a ‘transition’ are forming, suggesting we may be forming a bottom as well, in the price action.
Option Flows in $TLT
Overall the option flows in $TLT have been bullish on both fronts today with strong call buying and put selling. This means both call and put flows are bullish. The notional deltas for the day are around +343M which is just shy of the 30 day high of +360M. This tells me there is a lot of bullish flows pumping into this ticker on the day.
How We’re Trading $TLT
I’d like to target that $90 TCS strike but I think the Jan op-ex is too close, so I’m going to push for an expiry in Feb. I want to own either the $85 or $86 calls and perhaps buy a bull call spread for at least one month.
The IV’s are quite workable for Feb so I don’t have to worry about overpaying on the IV/vol premium. Hence both single leg options and call spreads work for this trade, which gives me the flexibility to tackle it with several strategies.
If you’d like to see how I’m trading this in real time, you can become a member of the Benzinga Option School or Trading Waves, get access to my live trades, live classes, and access to me in the live chat between 9am-2pm EST. I hope to see you there soon.