The TLT Puts I Bought by the Pool: Shorting Bonds on a Yield Breakout

By the pool on vacation, my wife asked me: "Nick, why are you staring at your phone all day?" I told her I was just checking the weather. In reality, I was staring at the TLT chart.

The setup: a signal the market ignored

Just before that, U.S. CPI and PPI blew past expectations and Japan's PPI ran hot too — and the market shrugged. Watching that, I thought: "No, TLT is going lower. Yields are going higher."

I don't usually make directional bets through options. They're depreciating assets, so I typically prefer to be on the sell side. But this time my conviction on direction was strong.

The turning point: buying puts and going long TBT

So I bought 30-day puts on TLT. The nice thing about buying puts or calls is that your loss is precisely defined — the most I can lose is the premium I paid. I bought 34 contracts.

When TLT dropped after the PPI print and then bounced, I sold that bounce to get in. At the same time, I went long TBT — which moves inversely to bonds — with a stop below the gap open. Two ways to express the same bet: higher yields.

Where it stands and how I manage risk

The position was up about $4,500 at one point, then today's sharp bounce gave some back, leaving me around $2,200 in profit. Bonds popped on optimism around whether the war would end.

What matters here is knowing, while you hold a trade, what you'll do if it works and what you'll do if it doesn't. My plan is simple.

• If yields fall and bonds rise tomorrow, I cut the trade, take my profit, and run.
• If it holds today's levels and breaks the lows, I trail my stop and ride the trend.
• If the gap starts to fill, I'm not married to the trade — I take what I've got and step out.

In my style, the thesis being right but the follow-through failing happens more often than not. That's the reality, and it's why I keep my stops tight.

If options aren't your thing

Not everyone is an options trader. A simpler way to express the same view is going long the dollar — these positions move very much in tandem with it. The point isn't what you buy; it's knowing in advance what you'll do when you're wrong.

Trading isn't about being right all the time. It's about making your account when you are right.