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Examination of long‐term bond iShare option selling strategies

David P. Simon

Journal of Futures Markets, 2010, vol. 30, issue 5, 465-489

Abstract: This article examines volatility trades in Lehman Brothers 20+ Year US Treasury Index iShare (TLT) options from July 2003 through May 2007. Unconditionally selling front contract strangles and straddles and holding for one month is highly profitable after transactions costs. Short‐term option selling strategies are enhanced when implied volatility is high relative to time series volatility forecasts. Risk management strategies such as stop loss orders detract from profitability, while take profit orders have only modest favorable effects on profitability. Overall, the results demonstrate that TLT option selling strategies offered attractive risk‐return tradeoffs over the sample period. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:465–489, 2010

Date: 2010
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Handle: RePEc:wly:jfutmk:v:30:y:2010:i:5:p:465-489