Opting for a bearish long put strategy means purchasing a put option, anticipating a decline in the value of bonds. This approach capitalizes on falling bond prices and, similar to the long call, the maximum loss is the premium paid.
The Bearish Long Put strategy depicted in the image above is for investors who anticipate a downward movement in the TLT (iShares Barclays 20+ Year Treasury Bond ETF). Here's a concise breakdown:
- Underlying Asset: TLT is trading at $86.19.
- Option Details: The strategy involves purchasing a put option with an expiry date of September 20, 2024, and a strike price of $99. The option's premium is $13.60, making the total cost $1,360.00 USD.
- Profit Potential: The potential profit from a long put is significant but not unlimited, as it's capped by the underlying reaching zero. The graph visually displays the increasing profit as TLT's price declines.
- Risk Analysis: The maximum risk an investor is exposed to is the premium paid, or $1,360.00 USD. This is the maximum loss if TLT closes above the $99 strike price at expiration.
- Breakeven Point: TLT needs to drop to $85.40 by expiration for this trade to breakeven (strike price minus premium).
- Option Greeks:
- Delta: -0.8038, signifying that for each $1 decrease in the underlying asset, the option value increases by approximately $0.8038.
Trade Setups for Traders
For those with a shorter time horizon and a more tactical approach, these setups offer flexibility across different market conditions. Following are 3 trade-setups depending your (short-term) outlook for bonds, and the TLT-ETF in particular:
1. Bullish Put Credit Spread: