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Longer Duration Bond ETF Options Not As Expensive As They Look As Rates Are Set to Drop

Jun 13, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

Name Ticker 30-Day
Implied
Volatility
90-Day
Implied
Volatility
30-Day
Percentile
90-Day
Percentile

30-Day Percentile
for 
Implied-Realized Spread

90-Day Percentile
for
Implied-Realized Spread
iShares 20+ Year Treasury Bond ETF TLT 37.66 35.07 82.14% 77.18% 32.54% 79.37%
iShares iBoxx $ High Yield Corporate Bond ETF HYG 34.87 33.65 76.19% 78.17% 40.08% 46.43%
iShares J.P. Morgan USD Emerging Markets Bond ETF EMB 103.36 97.4 76.19% 78.57% 29.76% 51.98%
iShares iBoxx $ Investment Grade Corporate Bond ETF LQD 35.04 33.61 75.79% 78.57% 37.70% 52.38%
iShares 7-10 Year Treasury Bond ETF IEF 106.57 107.46 73.81% 78.17% 23.02% 49.60%
iShares 1-3 Year Treasury Bond ETF SHY 35.47 36.02 72.62% 79.76% 47.22% 93.65%
SPDR Bloomberg Barclays High Yield Bond ETF JNK 106.57 107.46 73.81% 78.17% 23.02% 49.60%
ProShares UltraShort 20+ Year Treasury TBT 35.47 36.02 72.62% 79.76% 47.22% 93.65%
Invesco Senior Loan ETF BKLN 91.5 84.81 68.65% 65.87% 25.00% 37.30%
iShares Preferred and Income Securities ETF PFF 29.44 30.37 63.49% 64.29% 51.59% 73.81%
Direxion Daily 20+ Year Treasury Bear 3X Shares TMV 20.09 20.34 62.30% 64.68% 26.19% 70.24%
Direxion Daily 20+ Year Treasury Bull 3X Shares TMF 62.05 63.49 61.90% 63.49% 39.68% 77.78%

 

 

 

  • However, a closer look at these 3 ETFs should suggest that risk premiums for these options are relatively fairly valued
    • Would suggest the higher implied volatility is associated more the increase in realized price volatility, not necessarily traders overpaying for bond ETFs
       
  • Options Trader takeaway: Bond ETF options are not as expensive as they may look.  Traders looking for upside or downside exposure are better off “buying volatility” rather than trying to sell it here
     
 
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