TLT - deep ITM options and dividends

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blink18

I would like to buy&hold bond etf TLT with less capital at risk and was wondering about buying deep ITM LEAPS with delta 0.9-1.0 . As with all bond etf's, dividends are a big part of total return.

1. Does this mean that with buying options I should only focus on price return? For example, TLT's price return from 2002-2010 was +12%, while total return was +65%.

2. Are leveraged ETF's (2xUBT, 3xTMF ...) a beter play instead? I know they depreciate in value over time (especially in sideways market), but in that case you at least get total returns (price+dividends).
 
blink18 said:
I would like to buy&hold bond etf TLT with less capital at risk and was wondering about buying deep ITM LEAPS with delta 0.9-1.0 . As with all bond etf's, dividends are a big part of total return.

1. Does this mean that with buying options I should only focus on price return? For example, TLT's price return from 2002-2010 was +12%, while total return was +65%.

2. Are leveraged ETF's (2xUBT, 3xTMF ...) a beter play instead? I know they depreciate in value over time (especially in sideways market), but in that case you at least get total returns (price+dividends).
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You do not get total returns. You get the daily change of the index, which could be a very very different thing. As in, the index could be up over the course of a year but your 2x leveraged fund could be down. If you don't understand this aspect of leveraged ETFs your essentially just buying lotto tickets if you're "investing" in them.
 
blink18 said:
I would like to buy&hold bond etf TLT with less capital at risk and was wondering about buying deep ITM LEAPS with delta 0.9-1.0 . As with all bond etf's, dividends are a big part of total return.

1. Does this mean that with buying options I should only focus on price return? For example, TLT's price return from 2002-2010 was +12%, while total return was +65%.

2. Are leveraged ETF's (2xUBT, 3xTMF ...) a beter play instead? I know they depreciate in value over time (especially in sideways market), but in that case you at least get total returns (price+dividends).
More...

The least effective way to profit from TLT is to buy it and hold it for the sum of dividends and capital returns.

1. In Dividends TLT pays only 2.25%.
2. TLT is currently close to historical highs and when we finally get an increase in interest rates TLT will take a price beating like all bond holdings.

The best way to profit from TLT right now is to write options against it.

e.g. a simple 440 day 110/105 bull put spread will yield an annualized 11% with the net risk of being put at 110. With an interest rate hike in the wind you would could write bear call spreads.
 
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This strategy might make sense if you are a non-US based investor and want to avoid the 30% tax withholding of ETF dividends
 
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