Wednesday, January 6, 2016

Delta Neutral Bonds....01.06.16

Back to the bonds are boring theme.  Here's the current delta neutral profile of the simple TLT/TBT 20 year treasury bond pair with no 3rd input outlier.  Note the top # is set to 2 and the TBT stop is a multiple of the TLT stop since its a leveraged inverse.
Our DN approach is clearly superior to a TLT buy and hold strategy (dividend adjusted) although we have not factored in trading commissions.
Note that we have opted for the PCL stop value in lieu of the average as it is closer to the mean.  The TBT stop is skewed a bit also since ultras tend to swing wider than their at par counterparts like TLT.