In the past I had always put the cash in my trading account into treasuries (in the form of TLT) as a zero risk position. With the future of treasuries coming more and more into doubt I am looking to hedge even my treasuries position. The way to hedge treasuries would seem to be to buy TBT in .5 dollar amounts. The problem, of course, is that TBT pays no interest so that my interest on the net would be reduced by 33%. That means that instead of getting 3.95% I would only be getting only 2.6%. Question #1: I can sell calls on TBT to get my return back to a nominal 3.95%. Right now with TBT at 47.08 I can sell the Jan 2011 60 call for 1.43 giving me an annualized 3.75% on the TBT. The combined trade: TLT + TBT + short 60 call would yield me 3.88%. Anything wrong with this other than the 60 limit on TBT?? Question #2: TLT is currently selling for 91.22 and is returning 3.95%. The Jan 2011 90 put is bid at 6.20 yielding 7.4% compared with 3.95% for the stock...and I get my money up front. Anything wrong with substituting the short 90 put for the long TLT in the above set up giving : Short jan 2011 TLT 90 put + Long TBT + short TBT Jan 2011 60 call??? What can happen? I don't have a good way of modeling the whole thing together. Thanx for thinking about it.