There's finally some volatility returning to the stock market, with the Cboe Volatility Index spiking above 20 for the first time since June. Bond volatility has also ticked higher, but it remains relatively subdued. For investors anticipating increased volatility in longer-dated bonds, a long straddle in the iShares 20+ Year Treasury Bond exchange traded fund may be worth considering.
The iShares ETF holds U.S. Treasury bonds with at least 20 years to maturity, making it highly sensitive to changes in yields and long-term views on credit conditions. A long straddle is an options strategy that doesn't take a directional view — it profits if the underlying security moves significantly in either direction beyond what the market anticipates.
An ETF Option Play In Bonds
With the ETF's shares trading slightly above 90 on Monday, investors could establish a long straddle by purchasing both the 90 call and 90 put options expiring Nov. 21. The cost of this position is about $3.15 per contract, representing a maximum loss of $315 if the fund closes exactly at 90 on expiration.
If long-term bond yields — or equivalently, the iShares fund price — make a sharp move in either direction, potential gains can be substantial, potentially multiples of the initial investment.
The break-even prices at expiration are roughly 86.85 on the downside and 93.15 on the upside.
Implied volatility for the ETF's November options is currently 12%, which is higher than the 10% realized 30-day volatility, but below the 14% 200-day realized volatility of the fund's shares.
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Both Growth and Inflation Risks Persist
Long-term bond investors have struggled in recent years as persistently high inflation has kept yields elevated. Rising global debt levels have also sparked concerns over default risks and currency devaluations, driving capital out of longer-dated bonds. As a result, the iShares fund has lost about half its value from 2020 to mid-2025.
However, the picture has been improving.
Growing recession fears and early signs of weakness in the labor market have brought buyers back into the long end of the curve. After hitting a low of 83.30 in late May, shares of the ETF have rebounded, breaking above both their 50-day and 200-day moving averages.
Steven Bell is a writer and trader based out of Vancouver, British Columbia. He is the author of IBD's Income Investor column, focused on shedding insight on low-risk, underfollowed stocks.
