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) August 2019 $125-$128 in-the-money vertical BULL CALL spread at $2.90 or best
Closing Trade
7-22-2019
expiration date: August 16, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
In only a week, I have managed to capture a full two-point rally on the US Treasury Bond market. During this time, yields have cratered from 2.13% to only 2.02%.
The biggest risk event of the year is due next week. That is the US Federal Reserve decision on whether to cut interest rates that is out at 2:00 PM EST on Wednesday, July 31.
We already have 75% of the maximum potential profit in this position. So, I am inclined to de-risk here and go into the Fed decision with a ton of cash. It is literally a case of a bird in the hand versus 1 ¼ birds in the bush.
That way, if we get a surprise next week, I’ll be able to take advantage of any sudden bargain prices.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2019 $125-$128 in-the-money vertical BULL CALL spread at $2.90 or best.
If you can’t get my price today, put the same order back on tomorrow until it gets filled. If you are in a hurry to get filled, you might lower your price to $2.85 and still make 62.5% of the maximum potential gain.
With three interest cuts on the calendar by yearend, the US is about to become the fastest interest rate cutting economy in the world. Fed funds futures are indicating a 100% chance of a rate cut on July 31, and two more quarter-point rate cuts by yearend. But surprises CAN happen.
And as sure as heavy rain follows dark storm clouds on the horizon, that means the US bond market is about to become the world’s strongest.
This was a bet that the (TLT) would not fall below $128.00 by the August 16 options expiration in 24 trading days.
If you bought the (TLT) outright, keep it. Bonds are going higher.
This was a bet that the (TLT) would not fall below $128.00 by the August 16 option expiration in 24 trading days. To lose money on this position, ten-year US Treasury yields would have to drop rise above 2.15% very quickly. That is a bet I was willing to make.
The fundamental reasons for this trade are quite simple. The US now has among the world’s highest interest rates. They are about to join the ranks of the world’s lowest. Some 25% of the world’s outstanding government debt now has negative interest rates. In Germany, the figure is an eye-popping -0.34%. That is hugely bullish for bond prices everywhere.
Here are the specific trades you need to execute this position:
Sell 38 August 2019 (TLT) $125 calls at…….....…….………$7.50
Buy to cover short 38 August 2019 (TLT) $128 calls at…$4.60
Net Proceeds:………………………….………...........…….….....$2.90
Profit: $2.90 - $2.60 = $0.30
(38 X 100 X $0.30) = $1,140 or % in 11.54% in 4 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.
