While there are numerous ways to short Treasuries, there are several different approaches investors choose to take, each suited to a particular strategy and risk tolerance. What I’m outlining today is both high-risk and highly likely to succeed – IF I can outlast the Fed. See, I entered into the ultimate risk short today that I’ll describe further below, but want to emphasize that this probably isn’t a prudent approach for most retail investors and requires the ability to short, a margin account, and intestinal fortitude.
Short Treasury Strategy
The approach I took was to combine the leverage that options offer, the poor performance of leveraged ETFs over time (see more on ETF Decay), and the time value decay of both options and leveraged ETFs.
- Sold TMF Calls (TMF was priced at 61 during Tuesday trading)
- Strike Price $75
- Expiry November
- Premium 3.40 each
TMF is the 3X leveraged 30-Year Treasury Bond ETF from Direxion.
This is about as turbo-charged as you can get in looking to short bonds. In the past, I’ve already sold TMF short as an ETF holding, but now I’ve turbocharged the play even further.
Here’s the Rationale AND Risks:
…Continue Reading Shorting Treasuries For the Ultimate Risk-Takers
Darwin,
Shorting Long Treasuries is unpatriotic, it is like Ron Paul buying gold mining stocks, you are betting against America. Warren Buffett going to get your ass.
Both TBF and TBX are in a nose dive, so naturally you’ll have someone come out and say “Buy!”.
Bullshit. The run to safety is on and safety=USTreasuries, regardless of how stupid that is (and it is stupid) goes, especially for panicky European banks.. They are dumping kajillions into the Fed for safety sake because Euro-Banks are about to eat it big time.
Sooner or later, the Fed will lose (Smokie note) control of the long term rates but not yet. They are buying all the paper the Treasury prints because no one else will buy it (as of the last auction, it would have failed except for the Fed and its’ pet primary dealers).
So shorting US Treasuries will indeed be the trade of the century – but wait for it. Wait for it
Not yet. Even Bill Gross admitted he jumped the gun. Didn’t cost him much money to be safe too soon, but he fumbled the call.
When we get a real buy on the bear side ETFs for Treasuries, you can be sure I’ll put out the word because I’ll be buying into it hand over fist…
MA
Funny thing: The elders both chime in on this one.
Welsh, though sarcastic, does have a point. The upper eschelons of political thuggery will use such justification in a heartbeat when the monetary panic ensues to motherfuck you.
Muck also has a point… the stupidity of a panic-stricken herd of Euro-zone refugees will be no suprise, only this time they’ll snatch at shiney stuff too.
Darwin… you are ballsy. This is a risk I wouldn’t touch with a ten-foot pole…. seems like a crap-shoot (though you know the game well it seems) then again, I am poor so I crave only cash and the bling bling to trade up to a castle later.
I also appreciate the candor in the article. Good luck.
I’m in on Vanguards Rising Rate Opportunity fund. One day it will pay.
Welshman, funny stuff. So, I’d argue that I’m being patriotic by pointing out how fucked up our balance sheet is so I’m shorting US debt.
Muck – I may be early, but as long as I’m not about 20% early on TMF, the options expire worthless, so I’ll take it. I agree, this whole notion of buying US debt AFTER S&P grows a set and downgrades and AFTER Obama’s about to piss away another $300 Billion on a “jobs” program (voter giveaway for 2012), is beyond me.
Overall, I penned this one yesterday and executed then; as of today, the options are up 27% – TMF tanked bc the long bonds sold off. Pretty much inverse what the market does each day, but not a perfect correlation. If we get into hyperinflation, equities and bonds will both suffer simultaneously…