The TLT(iShares 20+ Treasury Bond Fund)rebounded nicely off Wednesday’s lows after two days of heavy selling.  The TLT has been under pressure all month and is now testing the major support zone that held in extremely well at the July and August lows.  Despite the impressive rebound after Wednesday’s deep gap lower open the long end has suffered a ton of damage.  In option land, traders are positioning for more downside, quite a bit actually.  Bob von Halle offers some color:  

Extremely large options spread executed in TLT today reflecting the view that their is significant further downside to 20 year government bonds (or conversely, much higher interest rates). With TLT approx at 123 area, the customer bought 20,000 Feb 120 puts, sold about 30,000 Feb 117 puts and lastly bought about 12,000 Feb 114 puts. It is a complex butterfly “like” strategy, but suffice it to say the max profit exists if TLT lands around the 117 zone at expiration, which is almost a 5% drop from today’s level. Bearish indeed. 

At time of publication we do not have a position in the TLT.