This Works Like Crazy for Reducing Volatility

Although this trade set-up does not involve options, it is one of my favorite set-ups for bond investing (Interested in learning more about bond investments? Click here for a great resource).

Basically, the trade involves going long and short on the bond ETFs. The volatility is reduced when compared to going long only AND you still get a great yield.

I shorted the iShares Barclays 20+ Year Treasury Bond (TLT) and netted $112.10 per share. I used that money to buy an equivalent dollar amount of the Alliance Bernstein Global High Income Fund, Inc. (AWF) at $8.29 (that’s buying about 13.52 shares of AWF for every share shorted of TLT). Unlike the TBT position however, this position yields a dividend! AWF has a yield of ~13.4% while the short TLT position had a negative yield of 3.5% (since I shorted the ETF I need to pay this dividend), which results in a positive net dividend yield of ~9.9%.


Long Short Bond Trade with Reduced Volatility
Living off Dividends


About T. Knight
Blogging about my journey to financial independence via investing for cashflow.

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