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How to triple your money by betting against bonds

It's time to play for a Treasury bond slide, according to Todd Gordon of TradingAnalysis.com.

Bond yields (which move inversely to bond prices) have been rising over the past two sessions, following Friday's better-than-expected employment report. This as stocks have turned higher, with the S&P hitting a record high on Friday and then again on Monday.

"You're seeing that inverse relationship between the bond market kick in, and I think bonds are right on the edge of a drop, indicating we might have an increase in interest rates here," he said on CNBC's "Trading Nation" on Monday.

To take advantage of this move, Gordon is looking to the TLT, the ETF that tracks Treasury bonds maturing in 20 years or more. The TLT closed at about $138 on Monday, and Gordon sees it sliding to $132.

To position for this drop, he recommends buying the 137-strike put option expiring in September and selling the September 132-strike put to create a bearish put spread. The trade would cost $1.53 per share, and if the TLT closes at or below $132 at September expiration, it will be worth $5 — for a profit of 227 percent.

This structure allows Gordon to reduce the amount of money he's spending, and therefore get the maximum leverage on his anti-bond bet. The downside of using this type of trade is that if the TLT drops below $132, the trader forgoes any additional gains he would have received if he had been more nakedly short the ETF.

"We're trying to get from point A to point B," Gordon said about his trade. "We're not trying to hit a home run here and call the end of a 35-year uptrend in the bond market; we're just trying to go to the next zone of technical support."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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