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) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2021 $144-$147 in-the-money vertical Bear Put spread at $2.50 or best
Opening Trade
4-7-2021
expiration date: May 21, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
If you don’t play options, just go out and buy the ProShares Ultra Short Treasury Bond Fund (TBT) outright.
We have just rallied a respectable $6.00 off of the recent $132.20 low for the (TLT). That has taken ten-year US Treasury yields down from 1.76% to 1.64% in two weeks.
Try as it may, the bond market just can’t get any more upside traction than that. Instead, we are getting a sideways “time” correction before the next down leg ensues. The outlook for fixed income is absolutely awful.
The memo is out now. Bonds have already dropped $25 in 2021 and the worst is yet to come. This is becoming a one-way trade. Therefore, I will be selling even small rallies, like the one we just saw.
With 2021 expected to be one of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.
This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2021 $144-$147 in-the-money vertical Bear Put spread at $2.50 or best.
Don’t pay more than $2.70 or this is really not worth doing.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021, it is expected to explode to $32 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise and interest rates to fall substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This is a bet that the (TLT) will not rise above $144.00 by the May 21 option expiration in 33 trading days. To lose money on this position, ten-year US Treasury yields would have to plunge to 1.34% from the current 1.64%, which they won’t three weeks. Pigs would have to fly first.
Here are the specific trades you need to execute this position:
Buy 40 May 2021 (TLT) $147 puts at…………..………$9.60
Sell short 40 May 2021 (TLT) $144 puts at……..……$7.10
Net Cost:……………………...…….………..………….….....$2.50
Potential Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20.00% in 33 trading days.
The Fat Lady is Singing for the Bond Market
If you are uncertain about 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.
