Thursday, February 18, 2010

TBT chart check-up

The exchange traded fund, TBT, is one of the best ways to hedge against a potentially devastating rise in interest rates, should the US Gov't begin to find it difficult to continue to sell trillions of dollars worth of treasuries to finance out-of-control spending ... :)

Today's action indicated continued technical strength with a close today right at 50:

Tepid investors could certainly wait until the 50-day moving average crossed over the 200-day, though this is a long term plan (2-3 years overall) so their is no harm in waiting as opposed to getting in earlier, especially if you personally think interest rates are going to drop. Some perspective is helped by also viewing the 3-month chart next to the 2-year:

Setting up nicely for a bull run, wouldn't you say? Let's go TBT!


BABY BEAR: Long stock, 2 shares for every 100 bucks. Go nuts.

MAMA BEAR: A little more leverage: Jan-2011 calls at 53 for 4.15. (close on Feb 18). You have 12 times the gain potential but limited time (10 months). You control 24 shares for every 100 bucks, but need 57.15 or higher by next January to break even.

PAPA BEAR: Bull call spread, buy the Jan11-50 calls at 5.40, and sell the 60 calls for 2.30. You're risking $3.10 to make $10. The probability of a 10 point move is more than 50/50, making this a lower risk than it appears. $322 potential per $100, but you have set a target for 60.

Personally, I like the mama bear play, because it doesn't cap the upside should things really get moving.

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