If Bond Volatility Heats Up, This Long Straddle Can Cash In

There is finally some volatility returning to the stock market, with the Cboe Volatility Index rising above 20 for the first time since June. Bond volatility has also risen, but remains relatively weak. For investors who expect increased volatility in longer-term bonds, it may be worth considering a long run in the iShares 20+ Year TLT (TLT) ETF.

The iShares ETF holds U.S. Treasury securities for at least 20 years to maturity, making it highly sensitive to changes in yields and long-term views on credit conditions. The long term is an options strategy that does not take a directional view – it wins if the underlying security moves significantly in any direction beyond what the market expects.

ETF option plays in bonds

With shares of the ETF trading just above 90 on Monday, investors can create a long line by buying both 90 call options and 90 put options that expire on November 21. The cost of this position is about $3.15 per contract, which represents a maximum loss of $315 if the fund closes exactly at 90 at expiration.

If long-term bond yields — or equivalently, the iShares fund price — move sharply in either direction, the potential gains could be large, perhaps multiples of the initial investment.

The breakeven prices at expiry are around 86.85 on the downside and 93.15 on the upside.

The implied volatility of the ETF’s November options is currently 12%, which is higher than 10% of the 30-day realized volatility, but less than 14% of the 200-day realized volatility of the fund’s shares.

Want more actionable options trading ideas? Go here

Growth and inflation risks remain

Long-term bond investors have struggled in recent years as persistently high inflation rates push up yields. Rising global debt levels have also raised concerns about default risks and currency depreciation, causing capital to move out of longer-term bonds. As a result, the iShares fund lost about half its value from 2020 to mid-2025.

However, the picture is improving.

Growing fears of a recession and early signs of weakness in the labor market have brought buyers back to the long end of the curve. After hitting a low of 83.30 in late May, ETF shares have rebounded, surpassing both the 50-day and 200-day moving averages.

Stephen Bell is a writer and trader based in Vancouver, British Columbia. He is the author of IBD’s “Income Investor” column, which focuses on insight into low-risk, under-followed stocks.

You may also like:

SPDR Gold Trust: A % call spread in this ETF could earn you $1,050

This bullish trade could allow investors to profit from Uber stock

Amazon stock is struggling at this price level. This trade takes advantage of slow movement.

A covered call on this REIT can generate some options premiums

This bearish trade might work better if Netflix stock declines