If you lose money when investing in U.S. Treasury bonds, this article will tell you how to speed up your unwinding and make a profit | Moomoo Research

Preface

In the current complex and volatile financial market environment, 20-year Treasury bond ETFs (such as TLT) have become the first choice for many investors. However, market volatility and changes in interest rate policies may cause ETF prices to fall, leaving investors in a dilemma. To meet this challenge, we propose two strategies to help investors get out of the trap and gain substantial returns in future market trends.

Strategy 1: Continue to hold TLT and use the Covered Call strategy

Strategy Overview:

1. Continue to hold: On the basis of holding TLT, do not rush to sell, and wait for the market to pick up by holding for a long time.

2. Sell call options (Covered Call): Sell higher-priced call options at the end of each month or before the Federal Reserve's interest rate meeting.

Strategy Analysis:

- Market Expectations: With the expectation of the Federal Reserve's gradual interest rate cuts, the price of long-term bond ETFs is expected to gradually recover. Continuing to hold TLT can not only avoid selling at a low point, but also enjoy capital gains from future price increases.

- Option fee income: By selling call options, investors can regularly receive option fee income. This income can make up for some of the losses during the holding period, and can even bring stable cash flow when the market is sideways. Let's take the option expiring on September 30 as an example. If it is stuck at $100 per share, we can make a covered call at this time. The call option expiring on September 30 with an exercise price of 100 yuan can receive $1 per share, which increases our holding income by about 2 months and slightly exceeds 1%, but the sacrificed income is the subsequent price increase under the rapid interest rate cut.

- Interest income: During the holding period of TLT, investors can also obtain regular interest income, further enhancing the overall income. Currently, the monthly dividend is just over $0.3 per share, which can continuously reduce the holding cost and collect rent.

Operation details:

- Select contracts: Select call options that expire at the end of each month, and set the exercise price to a certain range above the current price (such as more than 10%. If it is too high, the option fee will be too low).

- Risk management: Do not sell call options that exceed the holding amount on hand, otherwise it will become naked short selling.

Expected returns:

- Spread income: As the Fed gradually cuts interest rates, TLT prices are expected to gradually recover.

- Option fee income: Option fees obtained by selling call options every month.

- Interest income: TLT interest income during the holding period.

A simple calculation shows that you can continue to earn more option fee income than simply holding TLT, which is equivalent to earning the time value of options and the money of option speculators, but will lose potential returns.

Strategy 2: Sell Put strategy combined with cash management for those who still have money to buy at the bottom but want to wait

Strategy Overview:

1. Sell Put strategy: When TLT prices are low, sell put options (Sell Put) to get more TLT at a lower price.

2. Cash management: Deposit the margin required for Sell Put in moomoo's cash plus to earn extra interest.

Strategy Analysis:

- Market Expectations: Sell Put strategy is suitable for use when the market is close to the bottom area. By selling put options, investors can buy TLT at a low price in the future and reduce the cost of holding positions.

- Option fee income: By selling put options, investors can receive option fee income regularly, which not only enhances cash flow, but can also be used to further cover positions. At the current price, assuming that investors are willing to buy at $93 per share, but the current price is not $93, they can sell $93 put options, at which time they can earn a premium of 0.97 yuan per share, and the funds will not be consumed too quickly in holding ETFs, and the funds can continue to collect interest in Cash Treasure.

- Cash plus income: The margin is deposited in Moomoo's Cash Plus, which can obtain additional interest income and ensure efficient use of funds.

Operation details:

- Select contract: Select a put option with a strike price lower than the current market price to ensure that TLT is bought at a low price in the future.

- Cash management: Deposit all or part of the margin required for Sell Put in Cash Plus to earn additional interest.

- Risk management: Do not sell put options that exceed your ability to receive goods.

Expected income:

- Option fee income: Option fees obtained by selling put options.

- Cash Plus Income: Interest income earned during the period when the margin is deposited in Cash Treasure.

- TLT Interest Income: Interest income earned after buying more TLT in the future.

Summary

Whether it is the Covered Call of Strategy 1 or the Sell Put of Strategy 2, the core is to obtain multiple sources of income through option operations and cash management on the basis of holding TLT, so as to effectively get out of the trap. With the increasing expectations of the Federal Reserve's interest rate cut, both strategies are expected to help investors achieve higher comprehensive returns.