When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (TLT) – TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT)November, 2018 $116-$119 in-the-money vertical BEAR PUT spread at $2.95 or best
Closing Trade - NOT FOR NEW SUBSCRIBERS
11-5-2018
expiration date: November 16, 2018
Portfolio weighting: 10%
Number of Contracts = 40 contracts
There’s nothing like waking up in the morning to a big fat profit, like a 19.20% gain in a week.
That's what I did today when I saw that I had captured a massive profit on my short bond position which I had put on only five trading days ago.
I am therefore selling my position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT)November, 2018 $116-$119 in-the-money vertical BEAR PUT spread at $2.95 or best.
The risk/reward of continuing with this position is no longer favorable. I’ll leave it to the newbies to carry it for nine more trading days and through the midterm elections.
I spent Sunday speaking to political strategists and have come to a disturbing conclusion. The turnout for the Midterm elections on Tuesday is likely to be the largest in history, with some states seeing turnouts triple that of all-time highs. That has rendered all polls and forecasting models useless. So, ANYTHINGcould happen. It is all a perfect prescription for stock market volatility.
By coming out here you get to earn a hefty $1,800 profit in only five trading days, or 18.00%. Well done, and on to the next trade. I’m still kicking myself for not putting on a double position here, but its tough to get too aggressive when markets are in free fall.
The real blockbuster in the October Nonfarm Payroll Reportwas that Average Hourly Earningsexploded to a 3.1% YOY rate, the highest in ten years. Yes, ladies and gentlemen, this is what inflation looks like, up close and ugly.
The number immediately knocked the wind out of the bond market, taking it to a new low for the year. Yes, this is what double short positions are all about. I saw this coming a mile off.
I am raising as much cash as I can ahead of the Midterm elections tomorrow. Democrats seizing the House of Representatives is in the market already.
If the Republicans end up keeping the House you can count on at least a 1,000-point rally in the Dow Average in the next few days as the door is now open for more tax cuts, more deregulation, and more deficit spending.
If the Democrats end up taking both the Senate and the House you can look for a 1,000-point drop in the Dow. That would bring on a huge “flight to safety” bid in the bond market and yet another opportunity to sell short at great prices.
Either way, I want more dry powder with which to take advantage of any extreme moves that may take place. “Extreme” seems to be the order of the day.
The backdrop for the bond market is looking worse than ever. The budget deficit is about to break $1 trillion for the first time since the crash. Rising interest rates mean the government’s debt burden is about to grow by leaps and bounds. The US Treasury is hitting the markets daily with massive new issuance, and the Chinese are dumping what they have to support the Yuan, now at a ten year low.
This was a bet that the (TLT) would not rise above the $116 strike price by the November 16 expiration date in 14 trading days.
At least with this one we had the certainty that US Treasury bonds will be yielding 4% in a year, versus today’s 3.10%.
The fundamental reasons for this trade are growing by the day.
1) Bond auctions are getting increasingly difficult to pull off. It’s just a matter of time before we get a failed auction that completely crashes the market.
2) The Fed has already started dropping on the bond market in $6 billion a month, or $200 million a day, worth of paper in its QE unwind.
3) Tax cutsare providing further stimulus for the US economy, so is the NAFTA renewal.
4) We also now have evidence that China has started to dump it’s massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.
All are HUGELYbond negative.
That should take bonds down to new 2018 lows. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2018.
Here are the specific trades you need to execute this position:
Sell 40 November 2018 (TLT) $119 puts at………….………$4.80
Buy to cover short 40 November 2018 (TLT) $116 puts at…….$1.85
Net Cost:………………………….………..………….….....$2.95
Potential Profit: $2.95 - $2.50 = $0.45
(40 X 100 X $0.45) = $1,800 or 18.00% in 14 trading days.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
