This is a "for-the-record" type post and picks up on the topic of the previous entry, "Operation Twist Is Totally Skewed" of 22 March.
As an indicator for the long term US Treasury market, let's use NYSE:TLT, which was around 112 at the date of the article and has generated two (interest based) "dividend" payments for a combined $0.5735. Today TLT looks set to open around 123.50. Shorting TLT has resulted in a loss. Writing puts against the short position has more than covered the dividends. Provided short term, slightly out of the money puts were written the total loss on the position to date will have been around 4-6%.
NYSE:NLY, being the largest agency mortgage REIT (and the issue with the most actively traded options), is a reasonable indicator for the agency paper market. NLY traded around $16.20 on the 22nd of March, has paid a dividend of $0.55 and looks set to open around$16.50. Some additional income could have been generated by writing slightly out of the money covered calls.
On balance, world bond markets are still awaiting the final act of the ongoing Greek tragedy (The Final Act of an Entertaining Greek Tragedy, 30 January, 2012), and this last act has caused US treasuries to spike - now is the time to increase the short position (always remembering to partially hedge and generate cash to cover "dividends"). As to NLY and its ilk, maintain current positions, look forward to continuing dividends and establish partial hedges by writing calls.
