Bonds are going on tilt. How to play them, says Mike Khouw — SkimNews
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- TLT options traders traded ~1.6 million contracts on Thursday, nearly double the average daily volume, with 856,750 puts — roughly 3.3x the typical put activity — concentrated in October expirations.
- The most active contract was the October 79 put, with 123,649 contracts changing hands at an average price of $0.4786, while one large October 80/79 put spread traded 65,000 contracts for a $0.275 net debit — a roughly $1.8 million directional bet.
- TLT closed at $80.78 after printing an intraday 52-week low of $80.665, as 30-year U.S. Treasury yields rose another 7.6 bps that session and broke definitively above their Q4 2023 highs over recent weeks.
- The October 80/79 put spread pays better than 2.6:1 if TLT drops to $79 or lower by expiration — a $1.78 move that, per the source, TLT already covered between Tuesday morning's highs and Thursday afternoon's lows.
- TLT previously fell ~52% from the second half of 2020 through late 2023 as long-term rates climbed from pandemic lows, illustrating how long-duration bond holders bear price risk even when Treasuries are considered default-risk-free.
- A trader betting on a TLT decline is effectively betting long-term rates keep rising, with the source noting the U.S. government itself is the largest borrower exposed to that move.
Why it matters: The TLT put surge signals that professional options traders expect long-end yields to keep climbing, not stabilize. With 30-year yields already breaching Q4 2023 highs and the U.S. government being the single largest long-term borrower, sustained rate gains translate directly into higher federal interest costs. Retail investors with long-duration bond exposure are watching where hedge funds are placing directional bets.
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