TBT is not only the inverse to the TLT, but it is leveraged and moves twice as much as TLT. According to ProShares, "This Short ProShares ETF seeks a return that is -2x the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next." For instance, TLT is down 0.3% to $120.30 per share Tuesday morning and TBT is up 0.6% to $62.
In options action, an investor made a substantial bet against bonds Monday and opened a hefty 1x2 call ratio spread in TBT. In this strategy, 8,000 January 90 calls were bought on the ETF for $0.54 and 16,000 January 100 calls sold at $0.28. $0.02 was collected on the 1x2 and, if shares hold below $90 and the position is left open through the expiration, the investor pockets the credit. On the other hand, if shares rally north of $90, the trade begins to make money. The max payoff potential is $10 if TBT settles at $100 at the expiration, or a 61.3% surge above current levels. At that point, the 90s are worth $10 and the 100s expire worthless. There is additional risk to the upside due to the fact that not all of the 100s-strike calls (which are sold) are covered by the 90s.
Since TBT moves inverse to Treasury bond prices, it moves higher along with yields. Buying a Jan 90 - 100 (1x2) call ratio spread would hedge the risk of a dramatic decline in long-term Treasury bonds and a major spike in yields. Obviously, since long-term yields have an important impact on economic activity and also set other rates, like some mortgages, such a dramatic spike would have important implications for, not just holders of long-term Treasury bonds, but the entire global economy.
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