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The 60/40 Portfolio Is Broken. SPY and TLT Now Move Together 97% of the Time
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ticker lesson
Breakdown
0:00lesson
60/40 strategy testing with options
- Classic 60/40 equity-bond ratio for diversification
- Bonds offset equity volatility historically
- Testing neutral strategies (16 delta strangles)
- Rolling price correlation analysis between assets
1:44SPY· ticker
SPY-TLT correlation breakdown
- 2021-2026 correlation peaks at 97% positive days
- Bonds and stocks move together more frequently
- Red color indicates stronger correlation
- Historical negative correlation no longer reliable
3:33TLT· ticker
TLT hedging failure in 2022
- Bonds contracted 31% vs. S&P 500's 20%
- Hedging created exaggerated losses
- 2022 correlation inversion (2-year > 10-year)
- Shorting 2-year/longing 10-year failed
5:19lesson
IV correlation over price divergence
- IV often correlates even when prices don't
- Short premium positions face compounding losses
- Sizing and capital allocation critical
- Directional assumptions vary among traders
7:07SPY· ticker
60/40 P&L performance analysis
- 60/40 strategy dampened volatility in P&L
- Moderate growth vs. pure equity or bond exposure
- 2022 hedging failure still generated gains
- Volatility spikes create premium opportunities
8:51TLT· ticker
TLT premium and IV dynamics
- TLT implied volatility at single-digit lows
- Premium collection struggles with low IV
- High IV periods (12-15) create opportunities
- Bond trading risks include geopolitical sensitivity
10:33XLE· ticker
Energy sector outperformance
- XLE flat for decade before 2023-2024
- AI/tech growth driving energy sector rally
- Broad indices may not capture sector-specific gains
- Alternative assets (energy) outperform bonds
12:13lesson
Bond trading challenges
- Bonds offer poor premium generation
- High IV spikes coincide with sharp price moves
- Geopolitical/economic factors drive volatility
- Indices provide better directional diversification
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