First of all, this is speculating and I am expecting at least one rate cut.
Currently, I am already holding c90 options for January 2026. The IV of the options is low, so options are cheap and an upwards movement will be rewarded.
I tried to calculate the price of TLT using a simple regression determined by the interest rate for the last decade. Is TLT overpriced or undervalued looking at the current price and current interest rate?
My calculated price for TLT for today is $92 with the interest rate of 5.33 (data: fed funds rate).
In my eyes, a rate cut is not priced in yet. There are 3 FED meetings till Sep 20, 2024 (expiration date of available options in September, 2024). We have a interest rate at the moment that we had at top inflation peak.
My prediction for a 0.25 rate cut is TLT around $101.
Two rate cuts prediction is around $105.
For this option chain prices vary from:
c95 – 1.15
c96 – 0.93
c97 – 0.74
c98 – 0.60
c99 – 0.50
If I buy 10 c96 for around $950 and there is a rate cut what drives TLT to 101, it could be a worthful speculation with a possible payout of $5000 (101-96 * 10 options)
Do you expect at least one rate cut in the next three meetings? What are you thoughts of this calculated speculation?
Posted by AliGenerali