Trader bets against bonds ahead of Fed meeting

With some predictions of a March rate hike now as high as 50 percent, one trader is betting against bonds ahead of this month's highly anticipated Fed meeting.

The 20+ year U.S. Treasury bond-tracking ETF (TLT) has climbed about 1 percent in the past week, but Todd Gordon of TradingAnalysis.com believes that given the likelihood of a March rate hike, which could be announced on March 15 following the meeting, bond prices are actually set to fall. To determine how far bonds could fall, Gordon takes a look at the TLT over the past few months.

In a chart of TLT dating back to last July, Gordon points out that the ETF had seen a "decline for some period of time" and since the start of the year, has been in a "sideways consolidation." Given that the trader believes bonds will fall since the chances of a March rate hike have risen, Gordon actually wants to use this trading range to short bonds.

"We're in a period of consolidation here, and it looks like we have formed resistance on the top side that we can lean against to establish those shorts," he said Tuesday on CNBC's "Trading Nation."

The range, according to Gordon, lies between the $122 mark on the upside and around $118 on the downside. In other words, Gordon sees TLT dropping as much as 3 percent in the short term.


As a result, Gordon wants to buy the March monthly 121-strike puts and sell the March monthly 118-strike puts expiring March 17, just days after the Fed meeting. His total cost for the trade is $1, and he could make a maximum reward of $2 if TLT closes below $118 on March 17.

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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