I have been short for an average of 7 or 8 months on treasuries via the TLT etf. What I have done meanwhile is sell out of the money puts with early strike dates on my short positions, that has at least paid for most of the dividends I had to pay for being short. I did that mostly every time that the TLT fell, like that they paid more and I reduced the risk of giving up gains on my short positions if the TLT fell. I have also sold very far away out of the money covered puts, strike 90, that has been a very good trade, which I already closed, but it was profitable because the TLT remained high for so long and because I sold them when the TLT had temporary fallen to the 110 area and when the market volatility was very high.
Another similar alternative is selling deep in the money calls like that you do not pay the dividends and you pay much less in margin fees because your short positions are much smaller. The problem is that those short calls can not have a too low strike price otherwise they get, for sure, called away on the ex-dividend date so you end up paying the dividend anyways. To get around that you can sell calls that are closer to the current TLT value but then you run the risk of giving up all the gains when the TLT falls below the strike, and it has proved that when treasuries fall they fall fast so that risk is really worth considering. So nothing is easy !
Add to that the hardest part: it’s also not easy to short the TLT because it’s manipulated by the government, by politicians, by the FED, so you are betting against them if they want, like now, to keep interest rates low. I think 30 and 10 year treasuries are ridiculously low and if they were naturally priced by the market and not by the FED they would fall. So TLT has the potential of crushing and falling hard if you believe, like I do, that market forces are stronger than governments and that at the end inflation could creep in hard due to the constant interventionism, the high level of government debt, which could be inflated away, and the money dilution caused by large sums of printed money. But I might be wrong absolutely or in timing and interest rates could stay low for a very long time. On the other hand you can also have a change of policy from one day to the other, a change that would reduce quantitative easing intervention number X by the FED buying government debt and let interest rates run at least more freely. In such case you would be benefited by the subsequent raise in interests.
In conclusion I think that the risk of losing a lot at current levels is low, that interest rates are at a minimum due to interventionism that is more likely to disappear than remain for ever. To lose you would need to have lower long term interest rates which would be hard and risky to justify even by the fed given they they are already at a muti-decade low and negative in inflation adjusted terms. Meanwhile I can hold on the shorts by selling opportunistically covered puts, like I have been doing, or maybe even adding more shorts when I feel that the TLT is too high. Doing that I am able to hold my shorts for a long time. It has been hard to do and it has required constant monitoring, and I think that picking undervalued stocks is easier for me, that’s why I focus more on that. Then again good undervalued stocks are also not that easy to find, so when you do find them it’s worth putting some decent money into them. I think that with TLT I will not lose but I will only gain a decent amount in case of rising interest rates, which is also not sure. So actually what it does in practical terms is to act like a hedge against higher interest rates or inflation. I probably will not earn much nor lose, but if interest rates rise some day I certainly will make some decent money.