Unusual Options Activity on Inverse Bond ETF: Higher Rates Coming?

With bonds on the move last Friday during a tumultuous day of Fed commentary about the possible future path of interest rates, we saw some options activity in a levered inverse Bond fund that is worth pointing out.

The ProShares UltraShort Lehman 20+ Yr ETF (NYSE:TBT) (Expense Ratio 0.92%, $1.85 billion in AUM) September 32 calls traded on Friday, and with TBT currently trading with a high $30 handle, this seems like a speculative play on upside in TBT in the next several weeks. That, of course, would equate with weakness in longer dated U.S. Treasury Bonds themselves (and higher interest rates).

TBT-2016-08-29

TBT is structured to deliver two times the daily inverse return of the Barclays Capital 20+ Year Treasury Index, which is the same index that the largest “Long-Term Bond” ETF tracks, the tenured (debuted in 2002) TLT (iShares 20+ Year Treasury Bond, Expense Ratio 0.15%, $8.1 billion in AUM).

Year-to-date, TBT has seen modest inflows to the tune of about $43 million, while TLT has pulled in more than $875 million during the same timeframe.

If market participants are indeed speculating on potential weakness in bond prices and rising interest rates, we may also see an uptick in activity in other “Bear” products in the space such as TBF (ProShares Short 20+ Year Treasury, Expense Ratio 0.93%) and TMV (Direxion Daily 20+ Year Treasury Bear 3X, Expense Ratio 0.90%).

About the Author: Paul Weisbruch
paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.

Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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