The Vaccine + TLT

Dear Trader,

The government is about to spend close to a trillion dollars on covid relief.

The vaccine is being distributed, and in a matter of months, it appears there will be some beginning of normalcy.

This means spending and a return to employment for a lot of hospitality workers (hopefully nearly all of them).

There is also likely to be one more stimulus bill when Joe Biden enters the Oval Office,  although that one might be smaller.

What does all this mean for us as traders?

Unless the FOMC is going to keep buying bonds, there will be some reduction in demand for bonds.

This is a pretty darn bearish outlook for TLT.

So, I was pretty surprised when I pulled up the VIX of TLT options and saw this:

Bond option premiums are about as cheap as they have been in the last 6 months.

They are at the lowest levels we have seen since the pandemic really began.

In other words, if you are near term bearish TLT like I am,  it is relatively cheap to put a play on that fades the TLT.

I looked at a Jan22 159-154 put spread (long) with Bill Griffo. At the time the TLT was over 160. TLT is now about 156.6.

That trade was a winner as it went from in the money to out of the money.

I like similar trades in TLT in the Jan-Feb time frame.

Stay tuned for more info as we kick off another short week.

The VIX light is RED

Your Only Option,

Mark Sebastian

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