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Our January 2024 Options Trade: iShares 20+ Year Treasury Bond ETF (TLT)

The iShares 20+ Year Treasury ETF (TLT) holds a portfolio of U.S. Treasury Bonds, providing investors a low expense ratio (.15%) and a 3.69% dividend yield. We believe Treasury prices are making a cycle low: Treasury prices generally bottom when the Fed is done raising rates and following the most recent FOMC meeting, Fed Funds futures show investors believe the Fed’s next move will be to cut rates. In addition, investor sentiment became overly negative toward Treasuries in recent weeks and Leveraged Funds (speculators) are significantly net short Treasury futures (CME data).

Our covered call trade – buying TLT shares at $95.63 and writing January 19th, $92.00 calls at $4.75 – would generate a 1.47% gain (including a $.29 dividend) if TLT shares trade at $92.00 (or above) at the options expiration – a 13.2% annualized return. The trade breaks even if TLT trades down to $90.59 – $5.04 per share (5.27%) below the current price.

Nathan Weiss & Keith Schaefer
Co-Founders, In The Money options trading service
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