July Technical Analysis – TMF

In June’s cashflow post, I mentioned the need to expand my trading in order to meet the updated cashflow goal for 2011. I realized that two things needed to happen.

  1. I needed to review my strategy and decision making process to ensure that it was still consistent with my goals.
  2. I needed to make sure that I wasn’t getting sloppy with regard to trading money management.

And since I’m 100% cash and DRN/EDC are within a few percentage points of my June strike prices, now is the perfect time.

As mentioned in the previous post, the last few months have been “choppy” to say the least and the debt ceiling debate isn’t inspiring any confidence. So I’d really like to diversify a little and get back into some uncorrelated (relatively speaking) ETF’s.

The problem: most of the leveraged ETF’s available for a covered call strategy are based on US equity indexes or a sector of an index (so their correlated to some degree). Which means that my rule for non-equity index based ETF’s may need to “bend” a bit.


TMF is Direxion’s Daily 30-Year Treasury ETF. The fund tries to replicate 3-times the performance of the NYSE 20-year plus Treasury Bond Index. A few years ago, TMF was one of the ETFs I used to prove out this covered call strategy. The option premiums were always lower than DRN, EDC and others, but price movement is less volatile too.

As you can see in the graph, TMF has been range bound between $35 and $40 since May. It also looks ready to test the February uptrend again (as it did to kick off July’s trading)…looks like the current premium would cover a test of the $35 mark.

The only issue with this fund is the corresponding option volume. During the month of June, only 64 option contacts were traded. Ideally, I want to see 1,000 contacts or more each month. With that level of activity, my trades are less than 1% of the total volume, which is sufficient liquidity to let me enter and exit my trades without influencing prices.


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

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