Since the TLT-TBT pair trade is synthetically equivilent to a Naked Short Strangle on TLT, which is a completely different strategy from my normal CC/CSP positions, I've decided to keep it as a separate position, rather than merge it into my long term TLT position as I originally planned. By keeping it separate, I can better judge how this particular strategy is performing. The Position Summary will also be slightly different and will only include the amount/percentage of income generated.
As mentioned in this months results, there was quite a bit of tracking error between TLT and TBT, with TLT down $1.65 or -1.71%, and TBT up only $0.06 or 0.13%. TBT attempts to correspond to twice the daily inverse of TLT, and does a pretty good job of it on a daily basis. However, over a longer period of time it does not correspond to twice the inverse, as the results above show. Therefore, TBT is not a perfect hedge for TLT.
This position is not an attempt to hedge against a drop in TLT, but rather to take advantage of a trading range, which is what a Naked Short Strangle attempts to do. A Naked Short Strangle on TLT would normally consist of a selling a naked put below the current price and selling a naked call above the current price. Since selling naked calls is not allowed in an IRA, an alternative is to sell a naked put on TLT and a naked put on TBT, which is what this position does.
The following adjustment was made today on the iShares 20+ Year Treasury (TLT) and ProShares UltraShort 20+ Year Treasury (TBT) pair trade . All prices include IB commissions.
| Date | Stock | Description | Transaction | Status | Stock Investment | Income Generated |
|---|---|---|---|---|---|---|
| 11/20/2009 | TLT | CSP Margin Returned | CSP 100 TLT @ -94.00 | $9,400.00 | ||
| 11/20/2009 | TBT | CSP Margin Returned | CSP 100 TBT @ -43.00 | $4,300.00 | ||
| 11/23/2009 | TLT | CSP Margin Used | CSP 100 TLT @ 93.00 | ($9,300.00) | ||
| 11/23/2009 | TLT | Continued Trade | STO 1 Jan10 93.00 Put @ 1.35 | $134.75 | ||
| 11/23/2009 | TBT | CSP Margin Used | CSP 100 TBT @ 44.00 | ($4,400.00) | ||
| 11/23/2009 | TBT | Continued Trade | STO 1 Jan10 44.00 Put @ 0.90 | $90.00 |
Current Position Summary
| CSP Margin Used | $13,700.00 |
| Income Generated | $467.75 |
| Percent Income Generated | 3.41% |
| Annualized Income Generated | 11.13% |
| Days Held to Expiration | 112 days |
Trade History
| Date | Stock | Description | Transaction | Status | Stock Investment | Income Generated |
|---|---|---|---|---|---|---|
| 9/25/2009 | TLT | CSP Margin Used | CSP 100 TLT @ 94.00 | ($9,400.00) | ||
| 9/25/2009 | TLT | Initial Put Option | STO 1 Nov09 94.00 Put @ 1.19 | Expired | $119.00 | |
| 9/25/2009 | TBT | CSP Margin Used | CSP 100 TBT @ 43.00 | ($4,300.00) | ||
| 9/25/2009 | TBT | Initial Put Option | STO 1 Nov09 43.00 Put @ 1.24 | Expired | $124.00 | |
| 11/20/2009 | TLT | CSP Margin Returned | CSP 100 TLT @ -94.00 | $9,400.00 | ||
| 11/20/2009 | TBT | CSP Margin Returned | CSP 100 TBT @ -43.00 | $4,300.00 | ||
| 11/23/2009 | TLT | CSP Margin Used | CSP 100 TLT @ 93.00 | ($9,300.00) | ||
| 11/23/2009 | TLT | Continued Trade | STO 1 Jan10 93.00 Put @ 1.35 | $134.75 | ||
| 11/23/2009 | TBT | CSP Margin Used | CSP 100 TBT @ 44.00 | ($4,400.00) | ||
| 11/23/2009 | TBT | Continued Trade | STO 1 Jan10 44.00 Put @ 0.90 | $90.00 | ||
| 1/15/2010 | TLT-TBT | Totals | ($13,700.00) | $467.75 | ||
| DTE | 112 | Percent Income/Annualized | 3.41% | 11.13% |
