TLT Bullish Calendar Call Spread Appears to be a Steal at 27 Cents


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This TLT Calendar Call Spread Targets 338% Return

Bullish play with a target stock price of $94.50

Strategy has +338% upside potential and 24% undervalued


Strategy: TLT Calendar Call Spread
Sell 12-Jul-24 94.5 Call0.59
Buy 26-Jul-24 94.5 Call0.86
Debit:$0.27


iShares 20+ Year Treasury Bond ETF has increased by +1.0% today to $91.82. Today's price action is showing strength in both the stock and the overall market. Setting up this calendar spread with strikes at $94.5 gives you a bullish bias to tap into TLT stock's strength.

Option Profit Calculator Results for TLT Calendar Spread at 12-Jul-24 Expiration

In this scenario, the optimal stock price for the option strategy would be $94.50 on the date of the first expiration, July 12, 2024. This is equal to the strike price of the options in the spread. Since both TLT and the market are showing upward pressure, and the strikes are above the current stock price of $91.83, the spread is taking advantage of this bullish momentum. If the stock price is $94.50 at expiration, we can benefit from the 12-Jul-24 call, which we sold, expiring worthless, and the option that we are long, the 26-Jul-24 call, will still have time premium built in.

Since we do now know what the exact implied volatility will be on July 12, we can use our historical data to make an educated estimate to help us calculate the value of the 26-Jul-24 option. Applying the median historical implied volatility of 15.8 from similar options, the theoretical value of the call is 1.18 at the date of the 12-Jul-24 expiration. Using the above assumptions gives us a potential upside of +338% for this calendar spread.

TLT Calendar Spread Value vs. Market Price

According to Market Chameleon estimated value, TLT Calendar Spread is trading at a 24% discount to historical benchmark.

If we use historical data to measure how similar spreads in TLT were priced in the market, the 4-year average price was 0.36, with a high mark of 0.63 and a low of 0.26.

Currently, the calendar call spread is bid at 0.24 and offered at 0.27. The midpoint of the spread is 0.25.

If we use 0.36 as our historical fair value benchmark, the current market ask price is at a 24% discount, while the current market midpoint represents a 28% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
0.240.270.250.360.630.26
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The TLT calendar call spread we've identified here can be a good way to play a bullish outlook because the option strategy has a +338% upside potential, is 24% underpriced relative to historical measures, and will benefit from the stock price moving higher to $94.50.

See how Market Chameleon can help you make smarter and more efficient trades!



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Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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