While this is true, it ignores the ability to layer option exposure in a margin account in a well-designed and disciplined manner.

TLT is a popular ETF for options traders as US Treasuries are a widespread market resulting in high volume, high liquidity options contracts. Even long-term investors could benefit from trading TLT options, and I have a few ideas on how. First, an investor with a passively managed equity ETF portfolio could write TLT puts as an overlay to increase expected returns and increase diversification. This would be the more conservative approach. The second way would be to simulate a synthetic long TLT position by buying a longer term ATM call and selling an ATM put. Some people refer to this position as a synthetic, a combination, or a risk reversal.

A trading example looking at today’s closing prices would be the following:

  • Buy 1 TLT January 21, 2022 143 Call

  • Sell ​​1 TLT January 21, 2022 143 put

For a balance of $ 0.70

The confirmation and submission page for ThinkOrSwim shows the following details:


This position is very similar to owning 100 shares of TLT, which would currently cost more than $ 14,000. As a synthetic long position, the options trade is actually done on a small loan and would have a positive carry, which is evidenced by the breakeven stock price of $ 142.30. If an investor had a portfolio of $ 100,000 fully invested in a basket of equity ETFs, similar to our ETF BuyWrite strategy available to Steady PutWrite subscribers at no additional cost, he or she could also use 2 or 3 TLT combinations and effectively have a 100% portfolio. invests in stocks and 28-42% US Treasuries.

The TLT option combination will produce a very similar return if held to maturity as owning TLT directly. There would likely be a small lag in the combination of options versus TLT, as borrowing costs are embedded in the price of the contracts roughly equal to the risk-free rate. If it weren’t, you could go long TLT and short the option combination and get the TLT return with no price risk as it would be offset by the option positions.

Overall, this trading idea is a way to efficiently achieve low cost leverage. Since leverage increases both risk and return, this should be done carefully and only if you have a good understanding of the potential outcomes. My crystal ball is always cloudy so I can’t tell if now is a good time or not to add this type of trading to your portfolio, but TLT is down more than 20% and is currently down about 14% since last August . Because US Treasuries tend to be a less volatile asset class than stocks, such a loss is not often seen. If I look at the monthly data through 1935, I see that this current drawdown would be among the five largest in history. Buying proven asset classes like stocks and US Treasuries with lots of long-term evidence when they’re going through big losses usually turns out to be a good trade if you can stick with them.

Jesse Blom is a licensed investment advisor and vice president of Lorintine Capital, LP. He advises clients in the USA and worldwide. Jesse has been in the financial services industry since 2008 and is a CERTIFIED FINANCIAL PLANNER ™ Professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse holds a BS in Finance from Oral Roberts University.

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