TLT (treasury bonds) covered put and other activities

I sold one January 2013 strike 90 TLT put. It paid 364 dollars after commissions. It is covered by some of the TLT shorts that I have, equivalent to 300 shares. I therefore limit, for 100 shares, my short gain down to a TLT value of 90. I think that it is quite probable that before that date interest rates will increase, specially the 30 year treasury rates, making the TLT ETF fall from current levels. I still leave the door open to short a couple of puts more, so in case TLT falls enough, I will either close the shorts or sell more puts, possibly at lower strikes.

Most of the week I have been reading Human Action, Ludwig Von Mises main work on economics. It’s one of the deepest thinkers I have read about, much deeper than Keynes. My understanding on economics has been substantially increased, specially on subjects such as: private property, investments, the power of capitalism and division of labor, sovereign debt, the effects of credit expansion or contraction, booms and depressions, international trade, monetary policy, gold standard and the lack of it, interventionism, banking, and interest rates.

I now feel much more confident on macro economic issues and realize how generalized is the ignorance on that subject. One of the reasons I am studying Von Mises is precisely to understand monetary policy, sovereign debt, banking, and its effects on growth or depression inflation and interest rates. It gives me much more confidence and a workable knowledge base to take actions such as shorting treasury bonds or how to better time the buying and selling of stocks taking into account the macro scenario.

I was quite pleased to see the resilience of Google’s business model and its amazing internal growth and sales due to multiple growth drivers such as emerging markets, continuous shift to online advertising, you tube, new formats such as target interest ads, mobile (Android), google+, chrome and display advertising.

I am a slightly disappointed that the market recovered since I have not deployed as much cash into new investments or increased my current positions as much as I would have liked to, but on the other hand I would not be surprised if the volatility remains and the market takes more and bigger hits in which case I have quite a clear idea of what stocks I should buy. But if the market does not fall it would not be bad anyways :), at least I am more invested now than a few months ago.


About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at or you may learn more about me and my family by following the link "Author's site" from the menu above.
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15 Responses to TLT (treasury bonds) covered put and other activities

  1. The Borg says:

    Hi jrv,

    FYI, the best economist I follow is Brian Wesbury. He works for “First Trust”. I’ve been following him for years. He’s terrific!!
    His approach is very logically, and fact based. On First Trust’s site, he has a Monday morning commentary and he also has a number of videos in which he explains what’s happening economically.
    Check it out and let me know what you think.

    Also, another economist I follow is Nouriel Roubini. He’s NEVER correct, so you know what is NOT going to happen by reading his stuff. :)

    The Borg

  2. The Borg says:

    Hi jrv,

    You wrote awhile back about when to short VXX. It’s come down alot, but it’s still in backwardation. That’s kind of a paradox.

    I’d love to hear your thoughts.

    The Borg

  3. kainvest says:

    To short TLT, you might have to pay interests on the share you borrowed. What do you think of the alternatives –
    1. sell calls on TLT;
    2. buy TBT and sell covered call on it.

  4. jrv says:

    1) is what I did I did I sold calls, exactly for the reason you mention

    Regarding TBT I dont like inverse ETFs in general because they never do what they are supposed to do, on the long run they perform quite bad, but I have not looked specifically on TBT, so it could be an exception (but I doubt it).

  5. jrv says:

    Hi ! Doesnt seem strange, because the backwardation was very high when the vxx reached its peak. The 2 conditions I mentioned to short heavily never really happened, the vix and its futures were quite high but the backwardation was just too big, it was too risky to short even back then. That’s why even after the fall the backwardation still remains but it has been substantially reduced but now the problem is that the futures are not so high anymore, so again the 2 conditions to short are not present. In any case if you short small amounts or hedge you’ll probably do Ok on the long term. Ill think about selling my hedges only if the vix jumps back again which would not surprise me if it happens because I think that the sovereign and banking debt problems are far from being resolved.

  6. jrv says:

    Thanks for the tip about Wesbury! Roubini is Ok I more or less agree with several things he says, but I do not like his attitude, he has such a serious and bitter appearance that I cannot stand looking at him for too long :). I also found out that he was quite heavily invested in stocks even back in 2008/2009 so I do not trust his preaching much. I think he is famous due to his negativity, through history negativeness has sold very well on the mass media.

  7. The Borg says:

    Do you think the two conditions you laid out will ever be met at the same time? Doesn’t VIX have to come down to get out of backwardation?

  8. The Borg says:

    Agree, that’s the best way to short TLT. Write in the money calls.

  9. jrv says:

    It’s not guaranteed, that’s the ideal, it did happen in beginning 2009. Also a few weeks ago it almost happened, both futures were quite high (around 40) and with a backwardation falling and percentually smaller than the weeks before, so we were close…
    It could have happened that the vix went higher and both futures moved along closing their gap… Then it would have been a nice short.

    But that does not mean you should not short if it does not happen, just that its more risky and with higher likeliness to have temporary paper losses but you can in that case always take more care by hedging, or shorting small amounts in several steps.

    Personally if the vix goes up more and we get close to the 2 conditions again I’ll probably start unloading my hedges one by one.

  10. kainvest says:

    One slight issue with VXX call options is that the buy & sell spread is pretty big.
    If you buy and sell the same option, you might end up pay extra for the spreads.
    How do you minimize that?

  11. jrv says:

    I have not had a problem buying calls since I do it seldomly, the calls I bought a couple of months ago as a hedge have not yet been sold and since they are deep in the money now and their maturity is much closer their spreads have diminished. Anyways I always put a limit order between the bid and the ask so the order is only filled at the price I agreed. Spreads would be more of a problem if I was a frequent trader.

  12. The Borg says:

    Hi jrv,

    Thanks for so complete of a response.
    I did short a little VXX about a week ago when it appeared the Euro debt problem was heading for a solution.
    Also, for similiar reasons, I shorted a little FAZ.

    The Borg

  13. jrv says:

    Sure no problem, I think you’ll probably do well with both faz and vxx as a short, at most it will be bumpy and produce a few paper losses but given enough time you’ll probably do quite good, but who knows, my opinion could be biased, I’m betting quite an amount on the same side too

  14. NiPi says:


    I am not a intelligent investor :(

    I have these options, bought it based on my friends advice. Do you think I will lose money or win it ?

    > 8 calls on Hecla Mining (HL), Strike price $8, Expiry: Mar 2012.
    > 8 calls on SLV, Strike price $40.00 Expiry: DEC 11
    > 8 Put on Strike price $100.00 Expiry: MAR 12

    What do suggest I should do ? Would appreciate your help.

  15. jrv says:

    Sorry I do not know about SLV or HL, I can not help you there. My advice is to use your own judgment and never rely on tips or friends unless you verify it and convince yourself of how sound the investment is.

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