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Our December 2023 Options Trade: iShares 20+ Year Treasury Bond ETF (TLT)

If you think interest rates don’t have much farther to fall (after a fast 20% jump in TLT-NYSE), have a look at the last decade of REAL interest rates in this chart:

REAL interest rates are as high as they have ever been – even after the Street has started pricing in lower interest rates for the last 5 weeks!

To me and my colleague Nathan Weiss, that makes the 20+ Year Treasury Bond ETF (TLT-NYSE) an InTheMoney bank trade – likely for most of 2024 as well.

This is the second options trade on TLT for Nathan Weiss and myself in the last month. The first trade–on Nov 18 – we advised our readers to write December 15th, $85.00 covered calls on TLT shares, earning a 1.46% return as long as TLT shares are trading at or above $85.00 when the options expire – a 17.5% annualized return.

We believe Treasury prices have made/are making a cycle low and owning the TLT outright and writing calls against a portion of our position gives us; 1) medium/long term upside, and 2) 1-2% per month extra income.

TLT is once again functioning as a hedge against the economy. So if you were concerned about a major economic contraction, the TLT is a good strategic way to express that view.

That idea is getting popular and TLT is running up lately, so if our shares get called away – we can buy more and write more calls almost immediately! We do see TLT potentially at $120 a year from now – BUT – if the economy heats up again or if war causes oil to go to $120/b and TLT ends up mostly unchanged, our InTheMoney covered call strategy can still generate up to 20% returns. THAT is the primary benefit of writing covered calls!

Click below to see this trade, with more colour commentary inside.

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