Today I sold TBT June 37 puts for 1.05 ($105) each. At the time of the trade TBT was trading at 45.90, the Dow was at 7825 and the S&P 500 was at 823. We have downside protection to $35.90. The maintenance requirement for this trade is $485 per contract. The return on margin is 21.65% (105/485) for 128 days or 61.74% annual.
This trade is a play on rising Treasury yields. Long term Treasury yields are insultingly low. If we want the Chinese to continue to finance our economic follies and imperialism we are going to have to pay them a better interest rate.
If we want to continue to run the printing presses 24/7 and pursue every course of action available to devalue the dollar then it is inevitable that deflation will eventually give way to inflation. Treasury yields have to rise during inflationary times to incentivize buying these "safe" investments.
I've wanted to get in on this trade for a while now but was put off by the Fed's comments that they would buy our own Treasuries to keep yields low. Talk about robbing Peter to pay Paul. Bottom line: the U.S. is in trouble and in my opinion they aren't going to be able to loan money indefinitely as if we have a AAA credit rating.
My tone may sound confident but the fact that I sold the 37's when TBT was trading near 46 suggests otherwise. We are in a Depression which is defined as 6 consecutive quarters of GDP contraction. I haven't traded through one of these before, have you?
Caution and preservation of capital are paramount and I don't trust nor can I predict the actions of a desperate government. Our leaders look like deer in headlights right now. As such, I need a lot of downside protection and plenty of protective puts.
"Adjusted for Inflation, Dow's Gains Are Puny" WSJ
10 minutes ago
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5 comments:
How is it you compute your Maintenance Requirement. I've been trying to figure it out, and I think I'm missing something simple.
Thanks.
Great post. Just curious what made you sell June puts vs. say March or April. Thanks!
http://tylerstrading.blogspot.com/
Andrew - I'm using the actual maintenance that TD Ameritrade asks me to set aside. Before I enter a trade I figure 20% which is usually high when you're pretty high out of the money.
Tyler - thanks. In this account that allowed me to get farther out of the money and still make a worthwhile trade. For me it's more of an art then an science. I'm enjoying your blog as well. Good luck.
I understand the term NAKED PUT, but what do you mean by PROTECTIVE PUTS --- I have traded naked puts for awhile, usually two to three steps out of the money --- very nerve racking in todays market so I'm moving further out and sleeping awhole lot better --- I have really liked reading your blog --- how I got here I don't remember.
Anon - by protective puts I mean buying index puts so if the market crashes they go up. I buy them like insurance. you can search this site or check the label and find a lot more thoughts about them as well. Thanks for the kind words by the way.
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