Most people think bonds are boring. And it’s true, if you buy a bond and just wait for the coupon payment to arrive, it is definitely an uneventful investment… boring and safe. Of course, that’s exactly why people buy bonds.
However, trading bonds is a completely different matter. Bonds, even government bonds, can move as much as stocks do during the trading day (although this isn’t the typical situation). As such, trading bonds can be as profitable as trading stocks in the short-term.
It’s also true that bond volatility (whether it be government bonds or high-yield bonds) is often lower than stock volatility. But that just means the options on these types of assets can be very reasonably priced relative to stock options.
Traders can utilize the same options strategies with bonds as they do with stocks. After all, most traders use ETFs to trade bond products rather than the bonds themselves (or bond futures). Plus, there are several extremely popular bond ETFs that are used abundantly in investment portfolios of all types.
One of the most popular is iShares 20+ Treasury Bond ETF(NASDAQ: TLT) which trades about 10 million shares a day and another 70,000 option contracts. TLT tracks long-term treasury bonds, which means it’s a proxy for long-term interest rates in the US.