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 2020 $172.50-$175.00 in-the-money vertical Bear Put spread at $2.48 or best
Closing Trade
8-13-2020
expiration date: August 21, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
We have now captured an impressive six points in this bond market crash, so there is more room to take profits.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2020 $172.50-$175.00 in-the-money vertical Bear Put spread at $2.48 or best. By coming out here, you get to earn a very quick $920, or 10.22% in 2 trading days.
Well done, and on to the next trade!
If you can’t get this price, keep reentering it every day until you do, or run it into the August 21 option expiration in six trading days and collect the full $3.00.
If you have the ProShares Ultra Short Treasury Bond Fund (TBT) outright keep it. It is going much higher.
This cycle of Covid-19 infections is imminently going to peak out and start declining, at least for the short term.
As a result, I believe the core long FANG trade is long overdue for a break. Instead, I think we are about to witness a major rotation into domestic economic “recovery” stocks. Stocks will keep going up, but the leadership will change. Bonds and gold are also due for profit taking.
The bond market has just seen one of the sharpest rallies in history, the United States US Treasury bond fund (TLT) plunging an eye-popping 245 basis points in four months. That took ten-year yields from 0.95% to 0.52%. Those who got rate locks on their refi’s last week, well done.
The fundamentals of this trade are very simple. With the national debt already rising from a record $23 trillion to an eye-popping $30 trillion by the end of 2020, the US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This was a bet that the (TLT) would not rise above $172.50 by the August 21 option expiration in 6 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.30%, which they certainly did not.
Here are the specific trades you need to exit this position:
Sell 40 August 2020 (TLT) $175.00 puts at……....…….………$10.00
Buy to cover short 40 August 2020 (TLT) $172.50 puts at……$7.52
Net Proceeds:…………………….……............…..…….……….….....$2.48
Profit: $2.48 - $2.25 = $0.23
(40 X 100 X $0.23) = $920, or 10.22% in 2 trading days.
The Fat Lady is Singing for the Bond Market
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 by clicking here.
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 on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
