The activity in the bond market has been mixed in recent weeks as the market tries to sort things out directionally. However, today it appears that there is a more alignment in the option interest against a bullish move in bonds. While I’ve been generally bullish on bonds since September 28, the potential for a year-end rally and profit-taking in bonds makes sense.
Let’s take a closer look at the option activity in bond ETFs.
Bond ETF Option Activity
The bears have been primarily focused on U.S. Treasuries in the form of TIPS, long-term Treasury bonds and inverse Treasury ETFs. However, a large bearish trade was placed on a corporate Investment grade bond ETF that has a very tight spread with U.S. Treasuries with a similar duration.
Here’s a breakdown of today’s significant option activity:
iShares 20 Plus Year Treasury Bond ETF (NASDAQ: TLT)
- 4,000 17 DEC 21 $154 puts mostly BOT @ $2.08 to $2.32
ProShares UltraShort 20+ Year Treasury (NYSEARCA: TBT)
- 5,100 18 FEB 22 $17 calls mostly BOT in 1 print @ $0.67 to $0.69
iShares TIPS Bond ETF (NYSEARCA: TIP)
- 3,000 18 FEB 22 $126 puts BOT in 2 prints @ $0.70 to $0.75
- 3,000 18 FEB 22 $122 sold in 1 print @ $0.15
iShares iBoxx $ Inv Grade Corporate Bond ETF (NYSEARCA: LQD)
- 20,000 18 FEB 22 $134 puts BOT in 1 print @ $2.37
- 20,000 18 FEB 22 $130 puts sold in 1 print @ $1.10
- 20,000 18 FEB 22 $138 calls sold in 1 print @ $0.57
Conclusion
As you look through the above activity, you’ll see a combination of long puts, long put verticals, and a bearish combination. The combination is using the call sale to help pay for the put vertical. All the above activity is pointing to a near-term pullback in bonds. The overall picture for Treasury bonds is still pretty good, but this could be a signal to take some profits or a short-term bearish trade.
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