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Bonds post first positive session since election; Traders bet Trump rout went too far, too fast

A popular long-term government bond fun, the iShares 20+ Year Treasury ETF (TLT), rose on Tuesday for its first winning session since November 4th as traders bet the Donald Trump post-election reflation trade may be taking a pause.

U.S. bond yields soared to 11-month highs in the week following the election, as bond prices tanked. But the TLT managed to rise 0.5 percent on Tuesday.

At this point, Todd Gordon of TradingAnalysis.com believes the charts are implying that the ETF tracking long-term bonds (TLT) could turn around.

On a chart of TLT, Gordon says that he sees "support" at $120, from which TLT looks to have bounced up from each time the ETF hits that level. Since last Tuesday's election, TLT moved "quite sharply down" back towards the $120 level the trader points out, which to Gordon implies that TLT will bounce back once again.

"We're seeing a pretty good area of support that's been in play for the last two years, and it looks like it's a good idea to take the other side of this trade," said Gordon Tuesday on CNBC's "Trading Nation."


Since large moves are still expected in the bond market, options prices remain high. This circumstance "gives you an opportunity to sell very expensive options," Gordon said.

As a result, instead of buying expensive calls to bet on upside for the TLT, he opts to sell expensive puts.

Specifically, the trader opts to sell the weekly November 25th 122-strike puts and buy the November 25th 120-puts for a total credit of $0.64 per share. This means that should TLT close above $122 upon next Friday's expiration, Gordon would get to keep that entire credit. Meanwhile, if the TLT closes at or below $120, he will lose $1.36 per share.

While Gordon is risking more than two times what he could make on the trade, the trader believes that his level actually assure a high probability of success for the trade.

"We're shorting puts that are below the market, so we're already in a position that is in a profitable situation," he said. "And if volatility drops off, that volatility will continue to come into account."

TLT has plunged more than 6 percent since the election last Tuesday and is currently up only 1 percent this year. U.S. Treasuries slightly reversed their losses from the week on Tuesday, but bond yields still remain at their highest levels in almost a year.


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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.

Brian Sullivan

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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