Mike Khouw's TIP Trade

On CNBC's "Options Action," Mike Khouw suggested a bullish options trade on iShares Barclays TIPS Bond Fund TIP. He said we're in a low interest rate environment and it seems to him that interest rates can even go lower.

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He noticed that the institutional investors are betting on the steepening of the curve, which means that they are selling the longer-dated treasuries and they're betting on the short term interest rates to fall. The reason for such behavior is inflation, explained Khouw. It's the real interest rates that he's concerned about so he wants to make a bullish bet on TIP.

Khouw wants to buy the September $125 calls for $1.15. The trade breaks even at $126.15 or around 1.5% above the closing price on Friday.