TLT versus TBT

My recent posts on TLT and TBT have elicited a number of comments and queries about the relative attractiveness of either ETF as a trading vehicle and in response here are a few considerations:
In any technical trading comparison of TLT and TBT, TBT will always be the preferred vehicle for short term (day and swing) traders.
TBT typically has twice the volume of TLT and 3 times the open interest. Bid/ask option spreads on TLT are $.03-.04, while spreads on TBT are only $ .01-.02.
TBT also has the attraction that it can be easily shorted (no HTB restrictions) thereby allowing a trader to gain 2x leverage of TLT with capital requirements only 30% of TLT.

For longer term traders the decision to invest in TLT or TBT becomes a little muddier.
Looking out 6 months a buy/write ATM strategy and collecting dividends produces the following results:
TLT yields $ 3.40 call premium + 1.90 dividend =5.40/95.50 = 5.6% return for 6 months

TBT yields $2.90 call premium (no dividend) = 2.90/33.00= 8.8% return for 6 months

Are you surprised?

The caveat for long term traders using TBT is that TBT has traded in a 20 point range over the past 2 years…=20/30=66% volatility.
During the same period TLT has also traded in a 20 point range= 20/96= 21% volatility.

It really comes down to a traders risk tolerance and the ability to properly time your entries (and exits).

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