Betting that Treasurys will turn lower

As stocks have dropped and crude oil has continued to crater, investors have been seeking out safety in bonds. This has driven the 10-year Treasury yield to multiyear lows and sent the iShares 20+ Year Treasury Bond ETF (TLT) to a record high on Tuesday.

But maybe that sets up the opportunity to play for a bond turnaround. At least, that appears to be what options traders were figuring on Tuesday.

Even as the TLT soared, bearish put options were much more active than call options on Tuesday. And one of the most notable trades was the purchase of 2,500 January 131.50-strike puts for $1.55 per share.

This trade will only make money if the TLT falls below $129.95 (that is, the $131.50 strike price minus the $1.55 options premium) by next Friday.

So far, the trader appears to be on to something. As yields rose in Wednesday morning trading, the TLT was retreating. Consequently, the put purchased for $1.55 on Tuesday was worth about $2 by 10 a.m. EST Wednesday.


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