If you’ve ever placed a bull put spread on a strong chart, with clean technicals, solid theta, and even a good IV setup…
…only to watch it go red for no reason — you’re not crazy.
The chart didn’t break. The market didn’t tank. But your spread bled out like a stuck pig.
Here’s the truth that almost no retail options traders understand:
Bull put spreads are secretly correlated to bond yields.
And when Treasury rates spike, your "safe" credit spread becomes a ticking time bomb.
Let’s break down why — and how you can protect your portfolio before the next macro whiplash wipes your trades.
📉 The Hidden Macro Risk Inside Every Vertical Put Spread
Most people trade bull put spreads under the assumption:
-
They’re “directionally bullish”
-
They profit from time decay
-
And they’re relatively low-risk if the stock stays above the short strike
What they don’t realize is that these trades are highly sensitive to interest rate shocks — especially when the underlyings are mega-cap stocks, growth names, or index ETFs like SPY and QQQ.
Why?
Because when bond yields rise, a chain reaction begins:
-
Future cash flows become less valuable
-
Stock valuations compress — especially tech and growth
-
Option pricing models shift (yup, the Black-Scholes “r” term kicks in)
-
Skew steepens on downside puts
-
Your bull put spread starts leaking premium — fast
🧠 Wait, Isn’t That Just for Tech Stocks?
Not at all.
Yes, growth stocks are more sensitive to rate changes, but even boring boomer tickers get impacted. Why?
Because rising yields tighten financial conditions.
Which means:
-
Lower corporate borrowing ability
-
Slower capex
-
More cautious consumers
-
And… more market volatility
This directly affects IV skew, making your long put (the protection leg) increase in value faster than your short put loses value.
Translation: Your spread underperforms even when the market is flat or barely bullish.
🤯 The Black-Scholes Blind Spot No One Talks About
Here’s something 90% of retail traders (and even many pros) overlook:
The Black-Scholes model has an “interest rate” input — the risk-free rate — that changes how options are priced.
When the risk-free rate rises (i.e., 10Y yield goes up), it increases call values and decreases put values — in theory.
But markets aren’t math textbooks.
In reality, rising yields create downside volatility fear, especially in leveraged markets.
What does that do?
-
It jacks up IV on lower strikes
-
Which blows up the value of your long put
-
While your short put decays slowly (because now the move down looks more likely)
You lose edge. And unless you track macro rates, you won’t know why it’s happening.
🔎 Real-World Example: The 2023 “Rate Shock”
Let’s go back to October 2023.
The 10Y Treasury yield spiked from 3.8% to over 5% in a matter of weeks.
Meanwhile:
-
SPY dropped ~8%
-
Bull put spreads that were placed “safely” OTM got torched
-
Volatility soared — but skew became extreme on the downside
Even traders who picked decent delta spreads saw their max profits collapse.
Why?
Because bonds moved — not stocks.
📉 Your Bull Put Spread = Short Volatility + Long Duration Exposure
Here’s what most traders forget:
-
A bull put spread is not just a directional bet.
-
It’s a bet on market calm, volatility suppression, and macro stability.
When bond yields spike, all those things go out the window.
Your trade becomes an unintentional macro bet — and it’s usually on the wrong side.
🔧 How to Trade Smarter When Rates Are Rising
Here’s what you can do to avoid getting wrecked:
✅ 1. Track the 10-Year Yield Like It’s a Ticker
Use TradingView. Add TNX or /ZN to your watchlist.
If yields are rising fast — especially with weak auction demand — hold off on new bull put spreads.
✅ 2. Shift to Higher Delta Spreads
Low delta (0.10–0.15) puts are cheap for a reason — and skew can crush them when rates rise.
Trade closer to 0.25–0.30 delta short legs for more premium cushion and less IV drift risk.
✅ 3. Tighten the Width of Your Spreads
Wide verticals (like 10-point spreads on SPY) are more exposed to skew drift.
If you must trade, go tighter — or consider credit put ratios to better manage convexity.
✅ 4. Overlay Macro Calendar Awareness
Watch the bond auction calendar, CPI/PPI, and FOMC minutes.
Those days can ignite sudden rate moves — and punish bull spreads brutally.
🚨 Bonus: The Bond/Volatility Feedback Loop
There’s a feedback loop you need to watch:
-
Yields rise
-
Stocks pull back
-
VIX spikes
-
Put skew explodes
-
Bull spreads lose edge
-
Market calms down
-
Skew remains elevated
-
Your next trade has worse R/R
Don’t fall into this trap. Recognize that volatility + macro are married now.
You can’t trade one and ignore the other.
No comments:
Post a Comment