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Thursday, March 28, 2024

Comment by Phil

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  1. Phil

    TBT/Phlit – TBT is one I feel can be aggressively owned so I WANT 10% (and I don’t consider it a hedge, I consider it a position I believe strongly in) and I’m willing to play it to the point where I may have to commit more funds, even after 10% (so very aggressive).  Meanwhile, that does not mean I don’t cash out or scale back if I get stopped off a 20%+ gain because that would go from aggressive to foolish. 

    So, as an entry off a $100KP, I’d want to go with the Sept $44/48 spread at $2.30.  Since TBT is a little high from the last run, I’d go with 10 for $2.30 to start.  That makes $1,700 at $48, which is, by itself, a fine profit on my intended $10,000 allocation so I won’t be crying if it "get’s away from me."   Also, and I should include this in some strategy post, don’t forget that, if something does go in the money early in the cycle, it then (using this example) releases the other $7,700 for another trade – that’s not a terrible thing.  Once your 1x, 2x or 4x positon gets over 20% and you set a stop, you no longer need the cash to protect it since the position either makes more or becomes cash itself (when you stop out).

    The 50 dma is $48.50 so that’s the line where I’d sell 1/2 the March $50s, now 88 for about .75.  I only need to collect .23 per month to have a free position and, since we feel the rate situation will pressure over time, it’s better to be more aggressive with sales early on, and hopefully be uncovered or less covered moving forward. 

    Should TBT fly up, we have a DD roll for the callers so I don’t anticipate too much trouble there AND we have plenty of firepower left in cash to add more longs (or perhaps another, higher spread. 

    Should TBT head lower, I have no reason to think $46 won’t hold so I’ll be looking to sell the 1/2 the Sept $44 puts now $1.95 for $2.50+.  That will knock the long net basis to .55 and, if the calls expire worthless (more likely if I’m forced to sell puts) then the long basis is down to about .20!  Not bad for a first month’s work on a $4 spread! 

    Of course we need to keep track of the possibility of a good roll.  The $44 puts are $6.90 and the $40s are $9.90 so that’s .75 per $1.  The $48s were $4.60 so that’s .58 per $1 so we’d consider .55 a very good price for a roll down and we can just offer $1.10 for the roll to the $42s GTC right off the bat because we’re early in our scale and we know we want it.

    That would change our profile to the $42/48 spread at net $3.30, less the .37 we sold in March (and we’d likely sell .30 more if things are going so badly that we have to roll lower) and we’d also have the 1/2 short Sept $44 puts but we won’t be worried yet because they can be rolled to 2x the $40 puts and TBT was only ever below $40 for 3 weeks (Dec 08) when the 20-year actually went negative! 

    So that’s our entry position.  We have a trade and we have a plan.  That lets us move on to other positions without worrying about what we’re going to do on this one. 



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