logo

How to triple your money by betting against bonds

VIDEO3:2903:29
How to cash in if bond prices fall: Trader

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."