Stock / Option Trading - A Safe Play - Buying US Treasuries with protective put option
December 14, 2010, As of today Dow Jones Index (DJIA) set a new Annual High of 11514.08 and closed at 11476.54. With many analysts and main stream media projecting stock market bull view into 2011 as bond yield sours in the recent weeks, it is a very good time to long US treasuries. To limit the downside risk to meet the extreme conditions, have protective put option.
Buying Long Dated US Treasuries (TLT) along with protective put option is a very good investment for conservative investors. This is the price as of close of Dec 14, 2010 excluding commissions.
TLT - 100 Shares: US$9214.00
TLT1118R80 - 2 Contracts: 244.00 (Protective Put Option to limit downside risk)
TLT1118R80-US symbol information = June 18 2011 Put Option Strike 80.00 Premium 1.22
Risk and Return on this trade:
If TLT goes above 94.58, you will start gaining from your investment. If TLT goes below 90 or 85 levels, your 2 contracts of June 2011 put option will yield a significant profit that will limit your downside risk on long position of US treasuries.